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Gas Shortage Has China Backtracking On Coal Ban

Tsvetana Paraskova

China is backpedaling on its massive push for the coal-to-gas switch after the move created gas shortages in the north that left people freezing in the cold snap, financial magazine Caixin reported on Thursday.

The Chinese Ministry of Environmental Protection said on Monday in an urgent letter to 28 cities in the north that residents now could continue burning coal or firewood to keep themselves warm in the areas where the switch from coal to natural gas and electricity has not been completed, Caixin reports, despite the ban on coal.

“It is not wrong for Beijing to push the coal-to-gas switch, but the process was a bit too fast and outpaced the market’s capacity,” Xu Bo, a researcher with CNPC’s Research Institute of Economics and Technology, told Reuters.

So big has been the drive to switch from coal to gas, that China has been buying up liquefied natural gas (LNG) cargoes on the spot market, pushing spot prices higher than the prices of the oil-indexed LNG cargos in the long-term delivery contracts. Last week, Asia’s LNG spot prices jumped to the highest since January 2015 due to the Chinese demand and strong oil prices.

The country’s biggest LNG importer, CNOOC, is said to have leased two tankers to store emergency LNG supplies offshore as the ‘cleaner-fuel’ drive leads to unprecedented soaring gas demand and concerns of fuel shortages this winter.

Chinese LNG imports have soared this year, and China is now very close to surpassing South Korea as the world’s second-largest LNG buyer, the no.1 being Japan.

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According to tanker tracking data compiled by Bloomberg, tankers with a total capacity of 33.6 million metric tons have called on Chinese ports in 2017—just 1.7 million metric tons below South Korea’s total LNG imports.

“This didn’t look that likely for most of the year, as South Korean imports were so strong. But since July, China has been significantly higher than South Korea every month,” Kerry-Anne Shanks, a Singapore-based analyst for Wood Mackenzie, told Bloomberg by email.

By Tsvetana Paraskova for Oilprice.com

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