China takes measures to resolve power shortages, but impact on LNG limited
Chinese authorities have stepped up measures to overcome power shortages in several provinces, including raising coal production and resolving transportation bottlenecks, but their impact on LNG imports is likely to be limited, according to market participants and traders.
This was mainly because the share of gas-fired electricity generation in China remains low, with only around 16% of natural gas used in the power sector, and as LNG demand in North Asia will continue to be driven by heating demand and a cold snap that’s expected to last through at least January.
The two-week weather forecast from Japan’s meteorological agency issued on Dec. 23 showed “very low” temperatures in all parts of the country, and most of South Korea is expected to be in sub-zero temperatures in the coming week.
This is likely to burn through both coal and gas inventories in the region, and is helping support prices for both fuels. North Asian spot LNG prices have eased from a recent peak of around $12.40/MMBtu but remain high, with the S&P Global Platts JKM for February assessed at $11.575/MMBtu on Dec. 23. Platts assessed FOB Kalimantan 4,200 GAR Indonesian coal at $45.90/mt on Dec. 23, up 35.2% on the year.
In China, the Beihai LNG terminal in Guangxi province, which suspended operations after a fire in early November, is expected to start operations within a week with two LNG tankers en route to the terminal.
The Maran Gas Chios and Cesi Beihai are currently heading to Beihai LNG to deliver their cargoes in end-December and early-January, respectively, according to data from cFlow, Platts trade-flow software. This should help alleviate any gas shortages that may have caused power rationing earlier this month, as the Beihai terminal has one of the highest trucked LNG volumes in the country.
COAL AND POWER SHORTAGES
In mid-December, China’s Zhejiang, Hunan and Jiangxi provinces, and the autonomous region of Inner Mongolia, had begun restricting electricity usage by factories and government agencies, after receiving notices to stop production and halt the use of heaters if temperatures remained above 3 degree Celsius.
The move was aimed at lowering thermal coal prices due to constrained supply of both seaborne and domestic coal in preparation for harsh winter weather, but also partly to meet coal burning targets before the year ends, mainly in urban areas.
The government has officially said the shortages were due to lower-than-normal temperatures, and said it had taken measures including subsidizing power plants for higher feedstock costs, lifting domestic coal production and imports, and transferring power from neighboring provinces.
An official working on the southern power grid expected the situation to normalize, and downplayed the power rationaing, saying Guangzhou city’s light show was still on every night, despite Guangdong province’s power supply being 70% reliant on coal.
“For LNG, we do not see any impact at the moment as gas-fired generation made up a very small percentage (~3%) of the entire fuel mix in China. I think this is also the reason why they are limiting electricity usage — if possible to help ease the coal prices and any shortages,” Szehwei Yeo, LNG analyst with S&P Global Platts Analytics said.
Meanwhile, Chinese authorities have also asked railway companies to prioritize thermal coal transportation.
For instance, Guangzhou Railway Corp. and Inner Mongolia Railway got instructions to cancel all train appointments to ensure coal supply in Inner Mongolia and southern China. Jinneng Holding Power Group recently ramped up the shipping of thermal coal to utilities with urgent electricity needs while expanding procurement plans.
The January futures prices did not drop as much as May prices, signaling the shortages of coal in near-term while more buyers became confident that China could resolve coal shortages in two to three months’ time, a Shanghai-based trader said.