China says to control gas use as winter shortages loom

China will try to control the number of new natural gas users in an effort to slow a surge in demand and tackle looming supply shortages as the winter consumption peak approaches, the country's top planning agency said on Monday.

China has sought to promote natural gas use as part of its efforts to slash coal combustion in heavily polluted urban regions and diversify its energy sources. It has encouraged local governments to switch to gas for heating and public transport, but analysts said it may have moved too fast.

"Many cities such as Urumqi and Lanzhou in the northwest and Shijiazhuang in the north have switched to gas-fired from coal-fired heating systems with local governments under pressure to clear up the air," said an analyst with the China National Petroleum Corporation (CNPC), the country's top oil and gas producer.

"Gas consumption has jumped in a very short period, while gas supplies can only grow steadily, resulting in tight supplies this winter," the analyst said.

In its 2011-2015 industry plan, China said it would raise natural gas use to 230 billion cubic metres, more than double the 2010 rate, but disappointing domestic production growth coupled with insufficient pipeline and storage capacity has left it increasingly reliant on imports and prone to shortages.

China's imports of liquefied natural gas (LNG) in the first nine months of 2013 jumped by a quarter from a year earlier to 12.87 million tonnes. Arrivals in September stood at 1.52 million tonnes, up 10 percent from a year before and the third-highest volume this year.

According to a notice posted on the website of the National Development and Reform Commission (NDRC) on Monday, natural gas demand rose 13.5 percent in the first three quarters of 2013, 4.3 percentage points faster than production, and supplies are likely to get tighter as temperatures plunge (www.ndrc.gov.cn).

Lian Weiliang, vice-director of the NDRC, said shortages were already being felt in some regions, including Urumqi and Beijing, and were expected to worsen.

He said China would control the increase in new users, and would prioritise supplies to public transport and residential users over the winter period. Efforts would also be made to raise storage capacity, and China would use price and other market mechanisms to try to balance supply and demand.

The NDRC has already said utilities would be encouraged to make cuts in natural gas-fired power generation in order to reduce shortages during the peak demand season.

It has also encouraged major producers like CNPC to do their utmost to maximise supplies over the period, and has called for the faster construction of LNG terminals to ensure they are finished before the winter arrives.

Zhou Jiping, chairman of the country's largest gas producer and importer PetroChina , warned earlier this year that it would take at least four to five years to build up new supply capacity, and it would still not be enough to keep up with surging demand.

Analysts and developers say that China's strategy to raise the share of natural gas in its overall energy mix will not succeed without considerably higher prices.

Beijing raised gas prices this year in an effort to stimulate production and encourage imports, and last week it also allowed utilities fuelled by gas to charge more for the power they sell to the grid.

But the government has preferred to increase prices incrementally in order to limit inflationary pressures and ease the impact on consumers, which has left major importers like CNPC with big losses.