April 27, 2018 / 3:41 AM / 7 months ago

UPDATE 3-China state gas producers must sign supply contracts by end of April

* Gas producers to sign supply contracts by end-April -NDRC

* Contracts to include planned cuts to some users - official

* Targets set to build new storage by 2020

* Encourage trading of gas storages at national exchanges

* (Adds more details on contract management; pricing scheme)

By Chen Aizhu

BEIJING, April 27 (Reuters) - China’s state-run natural gas producers have been told to sign annual supply contracts with major users by the end of this month, a senior planning official said on Friday, as the country seeks to avoid a repeat of this winter’s severe gas shortages.

Freezing weather and a sweeping campaign to switch millions of homes and businesses from coal to natural gas to tackle smog led to a supply crunch earlier this year. Supplies were cut to some industrial users as authorities prioritised households.

“We remain under big pressure to ensure sufficient supplies this winter ... we shall have more adequate preparations,” said Zhao Chenxi, head of the bureau of economic operations adjustment at the National Development and Reform Commission (NDRC).

Demand for gas is expected to grow strongly this year as Beijing promotes the cleaner-burning fuel and the economy improves, Zhao told a media briefing.

China’s gas demand grew by nearly 10 percent in the first quarter of 2018 to 71.2 billion cubic meters from a year earlier, following a 15 percent jump for the full year of 2017.

Zhao said the annual contracts should include details of any supply cuts for major users during the peak winter heating season, which runs from mid-November to mid-March, stipulating the duration of such cuts and the volume to be reduced.

During periods of emergency situations, the additional cost of gas supply would be borne by either the buyer whose demand is above the contracted amount or the supplier who provides less than the contracted volumes, the NDRC said in a separate statement released later on Friday.

China has already pledged to build more gas pipelines and storage facilities to help ensure adequate gas supplies in the future.

STORAGE TARGET

NDRC officials said on Friday that gas suppliers — mainly state-owned companies like China National Petroleum Corp, Sinopec Group and China National Offshore Oil Corp — will be required to have storage facilities able to meet at least 10 percent of their contracted sales by 2020.

Local authorities will need to have sufficient storage to cover three days of consumption in their administrative regions, and city gas distributors must have storage equal to 5 percent of their annual supplies within the same time frame.

For local gas distributors who fail to meet the storage obligations or refuse to sign up supply contracts, they risk losing their business licenses, the NDRC said.

Market-based pricing will also be introduced to boost investment in the sector, the NDRC officials said.

The government is also encouraging the trading of gas storage capacity on gas exchanges in the cities of Shanghai and Chongqing, the NDRC said in the later statement.

In areas where there is wide price discrepancies between high- and low-demand seasons, a special pricing policy will apply to retail users to even out the cost throughout the year, the statement said.

China operates 25 gas storage facilities with a total working volume of 11.7 billion cubic metres, equal to less than 5 percent of the country’s gas consumption. This is well below the 20 percent mark for top gas consumers such as the United States and Russia.

Industry analysts have said China’s regulated gas pricing and near-monopoly in key distribution infrastructure are hurdles to future growth.

Reporting by Aizhu Chen and Tom Daly; Editing by Richard Pullin and Christian Schmollinger

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