December 13, 2017 / 10:10 AM / 4 months ago

As China gas crisis deepens, factories, homes lose supply

SHANGHAI/BEIJING (Reuters) - The southern Chinese province of Hunan has warned of natural gas shortages, an official said on Wednesday, as producers rush to divert fuel to heat northern homes with temperatures plummeting and factories across the country losing supplies of the fuel.

Cars line up at a filling station for liquid natural gas (LNG), one of a few that is open for business, in Baoding, Hebei province, China, December 5, 2017. Picture taken December 5, 2017. REUTERS/Thomas Peter

The so-called “yellow” warning was issued on Tuesday, the latest sign that gas shortages are spreading to warmer southern regions. The Hunan government official declined to be named as he is not authorized to speak to media.

Beijing has ordered millions of households and industrial plants across northern China to switch to gas heating from coal this year as part of its war against air pollution.

But the surge in demand and inadequate storage and pipeline network have led to severe supply crunch and a surge in prices just weeks into the start of the winter heating season, forcing the government to put the ambitious project on hold.

The yellow alert marks the third most serious level of warning in a scale of four grades of alert. It was earlier reported by local media thepaper.cn, and an official with the Hunan Economic and Information Technology Commission confirmed the alert to Reuters.

A liquified natural gas (LNG) storage facility of the ENN Group Co is under construction in Baoding, Hebei province, China, December 5, 2017. Picture taken December 5, 2017. REUTERS/Thomas Peter

In a move to ease the supply crunch as temperatures are forecast to plunge deeper below zero, local governments have reined in supplies to industrial users to ensure gas heating for residential use.

“Gas shortages are spreading to southern regions like Jiangsu and supplies to eastern cities could be curtailed as producers make northern regions a priority,” said Diao Zhouwei, analyst at IHS Markit.

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DEMAND OUTPACES SUPPLY

Gas supply in Hunan fell short of demand by about 10 percent at the moment, according to the official, who added that supplies to commercial and industrial users had now been cut.

The crisis over supply and soaring costs have forced some factories to close or cut output, stirring concerns about the damage to businesses in the world’s second-largest economy. The government has also imposed tough measures on steel mills and heavy manufacturing this winter to curb smog.

Some industrial consumers in the coastal city of Qingdao in Shandong province will lose gas supplies from Wednesday, state-owned Qingdao Energy Group said.

The company expects more than 200,000 cubic meters of gas shortages on Wednesday. Some homes experienced outages during peak hours on Tuesday due to a shortfall of 30,000 cubic meters of gas, it said.

The crisis has already spread to other southern regions, including Yunnan and Sichuan.

Yunnan Yuntianhua halted synthetic ammonia output until at least the end of the year as PetroChina has sent supplies to the north.

On Tuesday, German chemicals group BASF declared force majeure on products made at its chemicals facility in Chongqing, the Financial Times reported.

Reporting by Ruby Lian in SHANGHAI, Muyu Xu and Josephine Mason in BEIJING; additional reporting by Meng Meng; Editing by Manolo Serapio Jr.

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