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China energy crunch triggers shutdowns, pleas for more coal

Economic IndicatorsSep 28, 2021 12:46
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2/2 © Reuters. FILE PHOTO: A man walks near a coal-fired power plant in Harbin, Heilongjiang province, China, November 27, 2019. REUTERS/Jason Lee/File Photo 2/2

By David Stanway

SHANGHAI (Reuters) - China faces mounting pressure to ramp up coal imports and ensure supplies to keep lights on, factories open and water flowing as a severe power crunch roils the northeastern industrial heartland.

With electricity shortages sparked by coal shortages crippling large sections of industry https://www.reuters.com/world/china/chinas-power-crunch-begins-weigh-economic-outlook-2021-09-27, the governor of Jilin province, one of the hardest hit in the world's no.2 economy, called for a surge in coal imports, while a power company association said supply was being expanded "at any cost".

News organisations and social media carried reports and posts saying the lack of power in the northeast had shut down traffic lights, residential elevators and 3G mobile phone coverage as well as triggering factory shutdowns.

A utility in Jilin even warned power shortages could disrupt water supplies at any time, before apologising for causing alarm.

For the second straight day, the main state grid operator sought to reassure customers, saying it would work to guarantee coal supply and strictly control power use by high-energy consuming and polluting sectors, and ensure power supply to residents during the October holidays and winter heating season.

Cities such as Shenyang and Dalian - home to more than 13 million people - have been hit, with disruption at factories owned by suppliers to global companies like Apple (NASDAQ:AAPL) and Tesla. Jilin is one of more than 10 provinces forced to ration power https://www.reuters.com/world/china/what-is-behind-chinas-power-crunch-2021-09-27 as generators feel the heat of soaring coal prices that they can't pass on to consumers.

Speaking to power firms on Monday, Han Jun, the governor of Jilin province, home to nearly 25 million people, said "multiple channels" needed to be set up to guarantee coal supplies, and China should source more from Russia, Mongolia and Indonesia.

Han said the province would also urgently send teams to secure supply contracts in the neighbouring region of Inner Mongolia, according to Jilin's official WeChat social media account.

Goldman Sachs (NYSE:GS) estimated that as much as 44% of China's industrial activity has been hit by power shortages, potentially causing a one-percentage-point decline in annualised GDP growth in the third quarter, and a two-percentage-point drop from October to December.

It said in a Tuesday note that it was cutting its 2021 GDP growth forecast for China to 7.8%, from the previous 8.2%.

'AT ANY COST'

The power crunch has taken hold https://www.reuters.com/world/china/what-is-behind-chinas-power-crunch-2021-09-27 as a shortage of coal supplies, toughening greenhouse gas emissions standards and strong demand from industry have pushed coal prices to peaks.

China's thermal coal futures hit a record high at 1,330 yuan ($205.68) per tonne on Tuesday.

Rationing has been implemented during peak hours in many parts of northeastern China since last week, triggering state media reports of power supply disruptions in many cities and stoking concern on social media.

As some shops in the northeast operated by candlelight and malls shut early, posts on China's Twitter-like Weibo expressed concern about water after a utility in Jilin warned users that power shortages could hit supplies at any time.

Jilin governor Han urged companies to fulfil their "social responsibilities" and "overcome the difficulties" caused by coal price rises.

The China Electricity Council, which represents power suppliers, said on Monday that coal-fired power companies were now "expanding their procurement channels at any cost" in order to guarantee winter heat and electricity supplies.

It said China needed to increase production and supply of coal while guaranteeing safety and environmental protection. More medium- and long-term contracts needed to be signed to raise power plant inventories ahead of winter.

Coal traders said finding fresh import sources may be easier said than done.

"Russia has to first meet demand from Europe, Japan and South Korea," said one northeast China based trader. "Indonesia's export shipments have been curbed by rainy weather the last couple of months and Mongolia's exports, mostly by trucks, are small."

David Fishman, China energy policy researcher and manager at the Lantau Group consultancy, said flaws in China's pricing system were ultimately to blame.

"In the short term, the only relief policies that make sense are digging more coal out of the ground, which is bound to be an unpopular idea, or make end-users pay more for their power," Fishman said.

Policymakers had previously warned that China needed to build more coal plants in order to offset potential power shortages over the 2021-2025 period, but utilisation rates at existing plants remain low.

Lauri Myllyvirta, lead analyst with the Helsinki-based Centre for Research on Energy and Clean Air, said northeast China currently had 100 gigawatts of coal-fired capacity, which would be more than enough to meet demand if plants had the incentive to buy more coal.

"Not a single grid region has reported peak loads that would be even close to exhausting available generating capacity," he said.

China energy crunch triggers shutdowns, pleas for more coal
 

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