Severe cold snap in China drives up winter gas, heating fuel demand to record levels

Parts of northern China have been hit by the severest cold snap so far this winter, driving up demand for natural gas, power and heating fuels and potentially putting a floor on regional LNG prices.

China's Central Meteorological Observatory (CMO) issued the first low-temperature yellow alert this winter on Dec. 16, and continued to publish the warnings Dec. 17-18, saying temperatures would remain low in most parts of the country in the next five days.

The daily minimum temperature in some areas of northwest China, Inner Mongolia, north China, northeast China, central and eastern Huanghuai and eastern Jianghuai regions would be more than 7 degrees Celsius lower than the historical low for this period, the CMO said.

China's power and gas consumption logged record highs Dec. 17, with the highest electricity load reaching 1.242 billion kW and gas consumption totaling 1.423 Bcm, which were 83 million kW and 108 million cu m higher than peak demand in last year's heating season, respectively, state media Xinhua News Agency reported Dec. 19 citing the National Development and Reform Commission.

The cold wave has triggered a sharp drop in temperatures and heavy snowfall over the past few days and the NDRC was working in coordination with other agencies to ensure power and natural gas supplies, Xinhua reported.

The natural gas transportation volume at state-owned oil and gas infrastructure company PipeChina's pipeline network is expected to exceed 100 Bcm this winter-spring heating season, Xinhua said in a separate report.

This would be about 11% higher than the 90 Bcm transported by PipeChina in the last heating season, signaling higher gas volumes moving through the system to meet winter contingencies, calculations based on historical data showed.

The daily natural gas transmission volume through China's trunk natural gas pipeline has also exceeded 900 million cu m, hitting a new record high, state media CCTV said Dec. 16. China currently has more than 54,000 km of natural gas trunk pipelines with a transportation capacity of over 990 million cu m/d, the report said, showing that the system is nearing full capacity utilization.

The cold weather had also driven up power demand amid lower supply from hydroelectric sources, especially in Guangdong province, which would support gas demand from gas-fired power plants, a source with power producer Shenzhen Energy said.

Many inland LNG terminals and plants raised Dec. 18 their daily sales prices for trucked LNG by around Yuan 80-150/m or 2%-3% to around Yuan 5,900/mt, Yuan 6,300/mt and Yuan 5,140/mt in the Beijing-Tianjin-Hebei region, Yangtze River Delta and northern Shaanxi regions, respectively, according to gas distributor ENN Group's trucked LNG report.

ENN said the cold snap has boosted overall natural gas demand from city gas distribution companies and upstream suppliers are expected to divert more gas to residential users, helping support domestic trucked LNG prices in the short term.

Supplies remain ample

China has been shoring up gas supply to meet such winter contingencies.

Xinhua had reported in the week ended Dec. 16 that the country's pipeline gas imports, domestic gas production, LNG imports and inventories in storage have all increased this year, and underground gas storage had completed the annual gas injection plan ahead of schedule in mid-October.

China imported 107.4 million mt, or 148.1 Bcm, of natural gas, including LNG and piped gas, in the first 11 months of 2023, up 8.5% year on year, data from the General Administration of Customs showed. Natural gas production also rose 6% year on year to 209.6 Bcm in January-November, according to data from the National Bureau of Statistics.

Chinese LNG buyers don't expect the cold snap to have a big impact on LNG demand yet. Some second-tier buyers were seeking around one-two cargoes, likely for February delivery, due to low prices and not the weather, one trading source with a national oil company said.

"We haven't seen actual impact on LNG demand yet though temperatures have dropped to below zero degrees Celsius in Beijing. It still has to depend on how long the cold snap will last. Pipeline gas supply remains sufficient at the moment," the source noted.

LNG purchase inquiries from second-tier Chinese companies could also be due to the rush to utilize state-owned PipeChina's LNG terminal slots before the March deadline, as deposits on unused slots are forfeited and companies are labeled as unreliable shippers, a second trade source with Zhenhua Energy said.

"Domestic supply of natural gas is sufficient ... and the weather is expected to get warmer next week, so the current support for natural gas demand will not last long," a trade source in Beijing said.