China’s Faces Nat Gas Shortages, Price Hikes Xina Xie and Michael J. Economides
11/24/09
China has a new energy headache: natural gas shortages and price spikes. And those shortages are likely to persist for the foreseeable future.
Unseasonably cold weather, including heavy snow in northern China, has resulted in a natural gas shortfalls of as much as 40%. Industrial facilities, office buildings, and even hotels have been closed to save gas and those closures have occurred in cities in the south -- Changsha, Nanjing, Hefei -- as well as in northern cities like Beijing, Harbin and Xian. Rather than close, some industrial users have begun using diesel fuel to keep their factories running.
In Wuhan, industrial gas supply has been curtailed in order to assure adequate supplies to the residential sector. Taxis using natural gas as fuel, a proud accomplishment of the city, have been directed to start using gasoline, with about $15 per day of government subsidies. In gas-producing Chongqing in Sichuan Province, the waiting time to re-fuel natural gas tanks for cars has been more than 3 hours with the queues for fuel stretching nearly 1 kilometer. In Hanzhou, the famous “entertainment” businesses were closed to save gas and for the rest of the city, the suggested indoor air temperature was no higher than 18?C (64?F).
The shortages began nearly two weeks ago. On November 13, PetroChina which produces 70 percent of domestic gas in China, issued an emergency announcement to its gas distributors saying that it would limit supplies. Sinopec also started to apply similar gas supply restrictions on the same day.
Today, China Petroleum Daily, a publication of CNPC, the parent of PetroChina, predicted that the gas shortages will continue through December and January, with shortages reaching about 300 million cubic feet per day in the north, and about 200 MMcf/d in the south.[1]
“Ostensibly this natural gas supply crisis is caused by the weather. In fact, the crisis is caused by a lack of gas supply,” said Dong Xiuchen, a professor at China Petroleum University. The root of the problem “is the natural gas price control by the government. To oil and gas industries, if there is no profit for their businesses, they then don’t have the resources and motivation to explore for more oil and gas reservoirs. The ongoing rough pricing negotiation for imported natural gas makes it hard for foreign gas to flow into the country.”
China’s gas pricing has become a critical issue since China started to import large amount of foreign gas in 2008. The current China’s natural gas pricing system set by the country’s powerful National Development and Reform Commision has put the domestic gas producers in an untenable pricing situation. For example, there is a $6.25 per thousand cubic feet price cap on gas sold in the domestic market. But LNG imported from Qatar costs as much as $14.60 per mcf.
Reforming the gas pricing system has been discussed widely and may be inevitable. But, on November 19, the NDRC, mindful of possible consumer discontent, indicated that natural gas prices would not be increased in 2009. However, the agency did order that electricity rates for industrial users be increased by $3.70 per megawatt-hour. Residential rates will not be affected.
Although natural gas only provides about 3.4% of China’s total primary energy (compared to the world average of 24.1%), shortages of natural gas are likely to persist. The China Social Science Academy recently predicted that the country will have a shortage of at least 1 trillion cubic feet in 2010 and more than 3 tcf in 2020.[2]
In the meantime, poor residents in southern China, even patients in hospitals, are shivering in rooms at close to freezing temperature. It will be a long, cold winter in China.
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[1] reuters.com
[2] energychinaforum.com
chron.com
Related:
New Natural Gas Pipeline From Central Asia Feeds China
By ANDREW E. KRAMER; Edward Wong contributed reporting from Beijing.
15 December, 2009
The New York Times
MOSCOW -- With the turn of a ceremonial valve, China's president, Hu Jintao, opened a big natural gas pipeline from central Asia to China on Monday, significantly increasing China's access to the fuel and providing the first major alternative to exporting the region's gas through Russia.
The ambitious project runs 1,140 miles across three Central Asian nations to the Chinese border, linking Turkmenistan to the Chinese region of Xinjiang. Once inside China, it connects with a pipeline that can carry the fuel even farther east.
Though helpful to energy-parched China, the project siphons potential supplies from the long-delayed pipeline that the European Union would like to see built from Turkey to Central Europe. Such a project could also tap sources of natural gas in Turkmenistan, a stark illustration of the overlapping energy interests at play in the region.
For the China pipeline, Turkmenistan says it can supply 40 billion cubic meters of gas for 30 years once the line reaches full capacity, reported China Daily, an official English-language newspaper. That is about the equivalent of half of China's current consumption of natural gas.
The pipeline is the first major export corridor for natural gas out of the region that does not pass through Russia. It breaks from the Soviet-era design of a pipeline system built to supply Eastern Europe via Russia to the north of Central Asia. The new pipe revives a pre-Soviet view of trade in the region, in which economic exchanges flow east and west, not just through Russia.
''The startup of this pipeline reconstructs the ancient Silk Roads and symbolizes friendship and cooperation,'' Kazakhstan's president, Nursultan Nazarbayev, said at the ceremony on Monday, the Interfax news agency reported.
Mr. Hu was in Turkmenistan to turn the valve, which signaled the start of gas being transported along the pipeline. An inauguration ceremony was also held Saturday in Kazakhstan for that country's part of the project.
China's accomplishment was all the more notable because Europe and the United States have been jousting with Russia for years to break its natural gas pipeline monopoly.
Alexander A. Cooley, an authority on Central Asia at Barnard College, said China succeeded because it did not blend energy ventures with support for democratic change in the region, or demands for access to the military bases the United States needs to help wage the war in Afghanistan, as was the case with the Western powers. These other Western policy goals in Central Asia served only to stiffen Russian opposition to European and American oil and gas ventures, which fed into Russia's fear of being encircled by Western interests in the region, he said.
Russia also acquiesced to the Chinese because the pipeline poses far less of an immediate threat to the business of Gazprom, the Russian gas monopoly, than a westbound pipe would, according to Vitaly Y. Yermakov, research director for Russia and the Caspian for IHS CERA, an energy consulting group.
Russia's paramount goal is to prevent the West from breaking a monopoly on natural gas pipelines from Asia to Europe, which is the core of Gazprom's business. The eastbound Chinese pipeline, in contrast, does not undercut an existing Russian export market, because Russia sells no pipeline gas to China now.
Maybe they should be working on changing that.
PHOTO: Workers celebrated the opening of a natural gas pipeline in Turkmenistan on Monday near portraits of the leaders of Kazakhstan, Turkmenistan, China and Uzbekistan. (PHOTOGRAPH BY AGENCE FRANCE-PRESSE -- GETTY IMAGES) |
