China is facing some severe gas shortage at the moment, caused by the limitation of coal for heating in order to keep with environmental targets and the resulting boost of gas as an alternative heater. This has also some severe effects on China’s fertiliser industry, which relies on the gas for production processes.
While the Chinese government is pushing the country to higher environmental protection, the use of coal and other polluting heating materials is limited. As a result, the use of alternative heating materials, like natural gas, is witnessing a demand peak, where supply cannot match and hence the heating fuel supply is reaching some serious low level in some regions.
The price of liquefied natural gas in North China has been on the rise since September this year. With the beginning of December and some serious temperature drops in northern China, the gas shortage became more severe and even spread to the south, with gas prices in some regions exceeding USD1,210/t.
Especially in the northern regions of China, the supply shortage is very acute, leaving residents in anger about insufficient heating methods. In these regions, heating, as well as other regular uses, account for about 50% of all coal used in the winter period, which normally causes the obvious winter smog above China’s large cities.
The disruption highlights the government's difficulties in its campaign to clean up China's smog-choked cities and reduce reliance on coal.
The winner in this situation are natural gas providers, mainly from Central Asia, seeing exports of liquefied natural gas to China booming by two-digit growth recently. Other countries that use the high gas demand from the world’s second-largest economy are Japan and also American countries.
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 strengthen measures designed to control pollution from coal use.
The Development and Reform Commission held warnings on Chinese providers of liquefied natural gas to keep prices in an acceptable order and not take selfish advantage of the shortage at the moment. The counteraction to keep sufficient supply of gas should be a mix of increased domestic output and imports, while the infrastructure needs some overhaul and reform to ensure flawless transport of gas from the South of China to the North.
According to market intelligence firm CCM, the gas shortage has also some severe effects on some chemical industries, including synthetic ammonia manufacturers.
In the beginning of December, all-natural gas-based chemical fertiliser manufacturers, including those who produce urea and methanol, in some of China’s northern provinces had halted production in order to ensure natural gas for heating purposes in North China. For example, market insiders are expecting the daily gas shortfall in Sichuan Province and Chongqing Municipality will reach about 2,000 m3 this winter if the temperature remains unexpectedly low, and has therefore reduced or cut off the supply of gas to some of its subsidiaries, saving one million m3 of natural gas every day.
Facing such stringent gas shortage, downstream chemical industries successively cut or suspended production.
Yunnan Yuntianhua announced that its subsidiary had ceased operation of its synthetic ammonia and urea production lines in early December. and that it was unlikely that its subsidiary would be able to resume production by the end of this month. Hubei Yihua announced that its synthetic ammonia and urea production lines of Inner Mongolia had halted production for the same reasons.
Since most synthetic ammonia companies in the southwest use natural gas as a raw material in production, the lack of natural gas has had a significant impact on their operating rates, which in turn has resulted in tightened raw material supplies for domestic monoammonium phosphate and diammonium phosphate manufacturers. By the middle of December, mainstream quotations for synthetic ammonia in Yunnan and Guizhou provinces had risen significantly, and subsequent increases are expected in Hubei and Hunan Province. Some industry insiders believe that domestic synthetic ammonia prices may be further boosted as a result of higher raw material prices, as the natural gas shortage is expected to last until February or March 2018.