China's Energy Flows Strained by COVID, Record Cold

Government was unprepared for winter energy demand during COVID-19 outbreaks.
An analysis by Michael Lelyveld
2021-01-22
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China's Energy Flows Strained by COVID, Record Cold Workers remove snow at a liquefied natural gas (LNG) facility of ENN Group in Changsha, Hunan province, China December 31, 2018.
Reuters

China's struggles with energy shortages and the effects of extreme weather are raising questions about conflicts in government policies.

Since December, the government has been challenged by an extraordinary confluence of pressures on the country's energy supplies and its ability to meet demands for home heating and economic recovery.

The burdens on China's energy delivery networks and supply capacity may be the greatest in over a decade.

"Frigid weather across north Asia has caught utilities and liquefied natural gas (LNG) importers off guard as demand for power lowered inventories and pushed spot prices to record levels," Reuters reported on Jan. 8.

In Beijing, one of the coldest winters since 1966 drove temperatures down to minus 19.6 degrees Celsius (minus 3.3 degrees Fahrenheit), the official Xinhua news agency reported.

The plunge in temperatures forced the capital to restart its only remaining coal-fired power plant for backup power in late December to meet peak load heating demand, Reuters said.

LNG imports at northern ports were also stalled by the spread of sea ice from 10 to 40 nautical miles or more.

At the port of Tianjin, China's second-largest national oil company Sinopec spent 20 hours with an icebreaker and a hot water cannon to clear the way for docking a single LNG tanker to unload, Bloomberg News reported.

"The effort underscores how frigid temperatures have upended energy markets across Asia, catching some companies flat-footed and sending prices for electricity, fuel and vessels to record highs," Bloomberg said.

At Qinhuangdao port, the backup of coal carriers waiting at anchorage reached the highest level in over two years, according to Reuters. On Jan. 7, temperatures at the port of Qingdao fell to the lowest level in history.

"Sea ice has appeared in parts of the Bohai Sea and the Yellow Sea and this has pushed up the coal shipping transport costs and hurt the shipping efficiency," Xinhua reported on Jan. 13.

Some forecasts call for unusually cold winter conditions to continue in the Asian region until spring.

Grid companies in some provinces have rationed electricity supplies and reduced power to businesses in order to meet demand for home heating.

As in previous power shortages over a decade ago, factories have been forced to buy diesel generators to keep operating, causing a run on diesel fuel.

Viral snags

Resurgent outbreaks of COVID-19 in northern China's Hebei province and other areas have also played a part in the power crisis by hampering deliveries of some energy supplies and raising demand for home heating fuel.

The problems have been especially acute in Hebei's provincial capital of Shijiazhuang, where residents were ordered to go into quarantine for two weeks starting on Jan. 6 after hundreds of COVID cases were confirmed, according to Xinhua.

The government appears to have set the stage for energy shortages with stimulus policies aimed at spurring production for rapid economic recovery with expected growth of nearly 8 percent this year.

The strains on energy supplies and demand for the cold snap, economic recovery and the COVID outbreaks have all come together at the same time.

Official figures released this week on 2020 electricity production and consumption reflect the strains of power shortages.

While power production edged up 2.7 percent, according to the National Bureau of Statistics (NBS), electricity consumption rose 3.1 percent, the National Development and Reform Commission (NDRC) said.

In early December, the NDRC planning agency tried to contain rising coal prices by requiring buyers to negotiate longer-term contracts with suppliers, but prices have spiked with cold weather and supply problems.

Worsening conditions were met with assurances that power supplies were "largely stable" and that problems would subside in "one or two weeks."

In the battle to control the Hebei resurgence of COVID-19, officials have voiced similar assurances.

"I'm deeply confident that the epidemic spread in Shijiazhuang will be controlled within a month," said Zhang Wenhong, an expert team leader told the official English- language China Daily.

An executive meeting of the cabinet-level State Council chaired by Premier Li Keqiang on Jan. 8 offered a series of general directions for dealing with the crisis, but no remedies.

"Keeping homes properly heated is of vital importance for the people, and greater efforts are needed to ensure natural gas, electricity and coal supplies for the people," Li said, according to China Daily.

"Governments at all levels shall intensify inspection and supervision, and any problems identified must be dealt with in a timely and effective way to ensure that the people stay safe and warm throughout the winter," Li said.

The State Council promised to strengthen "energy provision mechanisms" and enhance energy production, supply, storage and sales.

Emergency backup power systems would be developed "at a faster pace," while the role of coal power would be "harnessed in a scientific manner," it said.

Caught unprepared

But the policy conflicts and worsening conditions have left the government unprepared to deal with the problems, said Philip Andrews-Speed, senior principal fellow at the National University of Singapore's Energy Studies Institute.

"The surge in electricity demand triggered by government- induced economic growth and unusually cold weather caught the power generators and their feedstock suppliers of coal and LNG by surprise, so inventories were not boosted a couple of months ago," Andrews-Speed said.

The compounding of worst-case conditions raises the question of whether the government should be held responsible for the combination of unforeseen circumstances that led to the energy crisis.

But given China's heavy reliance on state planning, it will be hard for the government to escape responsibility for energy shortages or policy conflicts.

Andrews-Speed said that the cold-weather crisis has pointed to more policy conflicts in the energy sector ahead, citing a statement by a State Grid official that home heating demand for electricity in the north already accounts for 48.2 percent of peak load.

"It is noticeable that space heating is consuming an increasing amount of electricity. As more electric vehicles hit the road, electricity demand will rise further," Andrews- Speed said.

Sales of new energy vehicles (NEVs) rose 10.9 percent to 1.37 million units last year, bucking the 6.8-percent decline in passenger car sales, according to industry reports.

The competing energy demands are likely to have consequences for President Xi Jinping's announced goal of reaching a peak in carbon emissions before 2030.

"Ever-increasing electrification of the economy will pose serious challenges for China as it seeks to peak emissions before 2030, unless the government allows the economy to slow down," said Andrews-Speed.

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