Gas pipelines are seen in a natural gas purification plant in Puguang gas field in Dazhou, Sichuan province, China September 8, 2017. Picture taken September 8, 2017. REUTERS/Stringer ATTENTION EDITORS - THIS IMAGE WAS PROVIDED BY A THIRD PARTY. CHINA OUT. - RC19AF26D7F0
Gas pipelines are seen in a natural gas purification plant in Puguang gas field in Dazhou, Sichuan province, China © Reuters

Gas shortages are spreading to industrial sectors in southern and western China after authorities in Beijing diverted the fuel to the north to resolve a shortfall caused by a botched effort to cut coal use.

Chemicals producers in Sichuan and Chongqing, in China’s south-west, have been ordered to shut or curtail production until March, heightening the economic impact of the disruption.

On Tuesday, German chemicals group BASF declared force majeure on products made at its chemicals facility in Chongqing, affecting the supply of the compounds used in Spandex among other products. “Spandex will be tight,” an industry executive quipped.

The National Energy Administration has taken over gas allocation from state-owned oil companies in an effort to co-ordinate an increasingly complex set of diversions to mitigate the shortfall. Beijing moved to cap gas prices in late-November after demand jumped in northern China following the onset of cold weather. 

“The emergency response to manage gas flow now is essentially a bureaucrat-dispatched system,” said Zhou Xizhou, managing director for Asia gas and power at IHS Markit.

The Guangdong Oil & Gas Association warned that shortages could also occur in China’s export-orientated south if colder weather coincided with increased diversions to the north. Gas was also being diverted from the coal-dependent provinces of Ningxia and Xinjiang towards the region around Beijing, forcing the closure of chemicals plants there.

In the north-eastern province of Shanxi, where trucking companies were encouraged to switch to gas a few years ago, the price per litre has jumped and vehicles that are still operating face long refuelling lines.

“All [our] trucks that run on natural gas have been stopped, as natural gas is now more expensive than diesel,” said an executive at a Chinese company with a national truck network. “You would be making a loss on every deal.”

The problem stems from a 2013 plan aimed at relieving Beijing’s pollution by moving heavy industry out of the surrounding North China Plain, converting smaller industrial users from coal-fired boilers to gas or the power grid and curbing coal-powered home heating.

However, some environmental inspectors and local government teams have removed boilers and home heating stoves before the replacement gas infrastructure was installed.

Beijing last week relented and allowed coal to be burnt in rural homes after millions of households were left without heat in winter weather. It has also restarted an emergency coal-fired power plant after earlier switching its relatively clean-burning coal-fired plants to power systems that run on gas made from coal.

The China-led Asian Infrastructure Investment Bank on Monday approved its first corporate lending — a $250m loan that will allow state-owned Beijing Gas Group to extend gas pipeline infrastructure to roughly 217,000 households around Beijing by 2021.

Another factor contributing to the shortages is the broad economic recovery in northern China, after a slump in growth from 2012-2016 that went unrecognised in official GDP statistics and may have contributed to planners’ miscalculation of how much coal would need to be substituted by gas.

The planning agency, the National Development and Reform Commission, is also in charge of China’s international negotiations to limit emissions of carbon dioxide and other greenhouse gases. Beijing has been keen to claim international leadership in the effort to avert climate change after the Trump administration vowed to pull the US out of commitments made in Paris, two years ago this week. 

While China’s economic slowdown helped keep global emissions flat in the past few years, they are expected to rise 2 per cent this year after the economic recovery pushed up coal usage.

Additional reporting by Emily Feng

Twitter: @HornbyLucy

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