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Gas shortages bite as China moves away from coal

04 Dec 2017

Gas-supply shortages are hitting north and central China as Beijing tries to accelerate a shift away from coal rather than miss environmental targets this year.
 
The situation has left some residents — mainly poor, urban migrants — without heat as temperatures drop below zero.
 
China’s emissions have fallen in recent years as a slowdown in economic growth hit heavily polluting industries in the north of the country. But an uptick in economic growth rates this year has caused emissions to rebound, forcing the government to double down on measures designed to control pollution from coal use. 
 
The cutback in coal has created strong demand for liquefied natural gas and pushed LNG prices up by more than 40 per cent as of late November compared with the year before.
 
Coupled with a cold spell over the past week, the shift away from coal has triggered shortages in natural gas supply in Hebei, the industrial province that rings Beijing, and as far south as Zhejiang Province, a centre for light industry in the Yangtze River Delta. 
 
“It’s definitely tight right now,” said Zhou Xizhou, managing director for Asia gas and power at IHS Markit. 
 
The state planning agency, the National Development and Reform Commission, has warned local gas companies to “standardise price behaviour”, according to state media. 
 
Mr Zhou said the government had dealt with the “low hanging fruit” of managing large pollution sources such as power plants, but was having a more difficult time addressing diffuse coal use by smaller businesses and residential neighbourhoods. “This winter will be interesting for how severe the impact [of the coal control measures] will be. It will set the course for how they deal with it in the future.”
 
A plan to address choking and politically unpopular air pollution in northern China involves moving heavy industry away from wealthy and populous cities into the poorer hinterland.
 
Other measures involve switching small businesses off coal-fired boilers and on to the power grid, and converting residential neighbourhoods to gas heat. 
 
Beijing has banned the burning of low-quality coal briquettes for residential heating, even as it tears down migrant neighbourhoods in a campaign designed to cap the city’s population.
 
Heating and other residential uses account for about half of the coal used in Beijing and surrounding regions in the winter, when air pollution normally spikes.
 
Villages in the mountains outside Beijing have been supplied with cleaner-burning coal briquettes but in sprawling urban neighbourhoods, many residents have had to switch to electric space heaters. Some poorer migrants crammed into slums in the outskirts of the city are living with no heat at all.
 
“It’s cold! BRRR!” a migrant cleaning woman surnamed Chen texted from an unheated farmhouse near the Beijing airport, as night-time temperatures plunged well below zero last week. Her landlord began forbidding coal stove-heaters early this year, in line with the new regulations. 
 
Expectations of rising Chinese gas demand are driving greenfield natural gas projects in Siberia and boosting hopes of LNG sales from the US, although prices of gas in east Asia are still too low to make US LNG cost-competitive. China currently imports about half the gas it uses, either through pipes from central Asia or in the form of LNG. 
 
But in the short term, the shortages derive from Beijing’s ambitious attempt to redesign the energy-use patterns of much of the northern half of the country. 
 
This year is not the first time that Beijing’s targets for improving environmental quality have bumped up against unexpectedly strong growth. In 2010, homes and hospitals in Quanjiao County, a car parts manufacturing hub along the Yangtze River, were plunged into darkness after a panicky local government shut down county-wide electricity supply rather than miss targets for improving energy efficiency. 
 
 
Source: Financial Times