China’s gas supply situation improves

01 March 2018, Week 08, Issue 682

As winter slowly draws to a close in China, green shoots of recovery have begun to appear across the country’s natural gas supply chain.

Reuters reported this week that around 10 natural gas liquefaction plants located in the country’s interior had resumed operations over the past week, after the government ordered gas wholesalers to redirect supplies to residential users amid a national supply crunch. The plants liquefy locally produced gas that is then trucked to end-users.

At the same time, state-run Sinopec announced the start of commercial operations at its latest LNG import terminal in Northern China, which has experienced particularly acute gas shortages in recent months.

Open for business

On February 28, Reuters quoted a sales manager at Shanxi Province-based Yangcheng Shuntianda Gas as saying that it had restarted its liquefaction plant, which is capable of liquefying 500,000 cubic metres per year of gas.

The employee, whom the newswire referred to simply as Wang, said the plant had been shut in December 2017. Wand added: “We lost 20 million yuan [US$ million] each month because we weren’t producing anything. Our boss was under extreme pressure from the bank to pay off loans.”

The restarts suggest that Beijing has eased its supply restrictions on state-run Sinopec and PetroChina, which were directed to favour residential users at the end of 2017 as demand raced ahead of supply.

Another sales manager at Yulin Huachen, which runs a similarly sized plant in Shaanxi Province, told Reuters that it had resumed half of its production over the weekend of February 24-25 after having being closed for more than two months. This time the employee requested complete anonymity.

More of China’s internal LNG plants are anticipated to resume operations in the coming weeks as the supply situation improves, Longzhong Information gas analyst Zhang Mengjie told Reuters. Longzhong data showed the LNG plants were operating at just 27% of capacity last week, compared with 38% a year ago and against a typical level of 50%.

Northern exposure

China’s intense gas shortages were created after provincial authorities in the north exceeded the central government’s predicted implementation of a directive to convert residential heating systems from coal to gas.

Four million homes across 28 northern cities were converted in the run-up to the winter period, outstripping the capabilities of the national pipeline network and storage facilities.

Beijing was forced to prioritise residential gas users at the cost of industrial customers, direct its northern cities to ease conversion efforts and instruct its state energy majors to step up spot LNG purchases.

The country’s imports of the frozen gas set new records in December 2017 and January, when deliveries amounted to 5.18 million tonnes.

Sinopec’s news this week, then, that it had received the first commercial LNG cargo at its Tianjin terminal in northern China, will have been more than welcomed by end-users and officials alike.

The country’s north, though heavily populated, is underrepresented in terms of import terminals and pipeline networks alike. Just four of the country’s 17 LNG terminals are positioned to serve large northern cities such as Beijing, Tianjin and Dalian, while the other 13 are located in eastern or southern provinces. Many of China’s largest pipeline networks, meanwhile, pump gas to southern and eastern areas.

With new terminals coming online and Russia about two-thirds of the way to completing the Power of Siberia pipeline, which aims to deliver 38 bcm per year of gas to China’s north, some of that imbalance should be rectified.

Despite the supply shortfalls experienced these past few months, and the impact they have had on industrial users, one company is willing to invest in new liquefaction plant even though Beijing has given no guarantees that supply will match and demand next winter.

Small-scale ambition

Hanas New Energy has revealed that it intends to build a 5 million tpy LNG facility in the northwestern region of Ningxia.

The total cost of the Wuzhong City project is estimated at US$1.5 billion, IIICorp quoted Hanas purchasing manager Liu Tao as saying this week. The company will seek financing from banks such as China Development Bank (CDB), Hengfeng Bank and China Construction Bank.

The plant will source gas from fields in the Ordos Basin, with Hanas aiming to build 50 regasification stations throughout region, with a total regasification capacity of 600 mcm per year of gas.

A preliminary feasibility review has been carried out by China Huanqiu Contracting and Engineering, and IIICorp quoted Liu as saying the project had progressed to the feasibility study and approval stage. The official launch is anticipated to take place in the second half of this year. The project will involve a large number of valves and accessories and compressors among other equipment.

Edited by

Andrew Kemp

Editor

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