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CNPC plans to cut gas supplies to industrial users

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Reuters are reporting that China National Petroleum Corporation (CNPC) plans to reduce natural gas supplies to industrial users as it expects shortages this winter after millions of residential households were switched to gas for heating under a government programme to reduce pollution.

CNPC said it will cut supplies to industrial clients by a range of 3% to 10%.

CNPC expects a 12% jump in gas consumption from a year ago because of the residential switch.

The oil and gas producer and importer will boost purchases of spot LNG cargoes and further lift the capacity of LNG receiving terminals. The company will also try to increase imports from Central Asian countries, such as Kazakhstan.

Analysts expect Kazakhstan to supply 1 billion m3 of gas before the end of the year as part of a supply deal through the Central Asia-China pipeline network operated by CNPC and local partners.

CNPC said it can only provide about 76.5 billion m3 of gas even if it runs its gas fields and LNG terminals at full capacity and fully stocks its underground storage. This is below its expected current demand of 81.3 billion m3.

CNPC is the first natural gas producer to reduce supplies as China faces a potential supply crisis after the central government switched millions of residents to gas heating rather than coal this winter.

The cut could add further fuel to a rally in gas prices and is likely to stir concerns among industrial users about soaring costs and tighter supplies.

Spot Asian gas prices have risen above oil-indexed cargoes as energy providers scramble to avoid a looming winter crunch.

Under the new rules, residential users will have priority over industrial users in cases of supply curtailments.

China’s government moved the residential users on to gas to combat smog that typically develops from coal emissions in the winter as more coal is consumed to heat homes and run power plants.

CNPC has a working volume of 7.4 billion m3 at its natural gas storage sites, accounting for 5% of its annual sales plan.

CNPC’s unit PetroChina operates three LNG import terminals with a combined annual capacity of 43.7 million m3 at Dalian in Liaoning province, Caofeidian in Hebei province and Rudong in Jiangsu, although on average these terminals operate at 40% of capacity.


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