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Why China Is Battling a Mid-Winter Gas Shortage

4 minute read

Parts of China are experiencing extreme cold this winter: the country’s northernmost city of Mohe logged -63°F, the lowest temperature on record. Amid that, a lack of affordable natural gas has left many people struggling to keep warm.

Earlier this month, state-run Global Times reported that communities in Hebei province complained of cuts and rationing in the natural gas supply leaving them short-handed. In Shanxi province, a residential building posted red posters akin to those displayed during the Lunar New Year, except these ones said “cold,” according to Hong Kong-based news outlet HK01. The building reportedly had not been supplied heating and natural gas.

How did China’s gas shortage happen?

Experts believe the recent tightening of the energy market is the byproduct of several factors, including the war in Ukraine, which jacked up oil prices globally, and the increase in demand as China reopens following an abrupt discarding of its strict zero-COVID policy.

Although China is investing significantly in diversifying and creating its own energy sources, it is still an energy importer unlike the U.S. Official statistics show that in 2022, the country imported 109.25 million metric tons of natural gas. This makes the country vulnerable to price fluctuations globally.

Gas prices in the residential sector are tightly regulated. But the cost of natural gas at import terminals can go up to three times the amount set by regulators, says Jenny Zhang, a natural gas expert from the Hong Kong-based energy firm Lantau Group.

Energy distributors thus have greater incentive to direct their supplies to industries and businesses that can afford the higher prices, and to cut off supply for households that can only pay below the market rate. Subsidies given by provincial, city, and county governments do not cover the gap between the cost set by regulators and the current market rate, Zhang says.

Beijing is aware of the current gas shortage facing residences. On Jan. 13, Lian Weiliang, vice chairperson of the National Development and Reform Commission, the country’s economic management agency, said that some localities and enterprises failed in “implementing measures to ensure energy supply and stabilize prices for people’s livelihoods.”

Lian said natural gas contracts the government signed before winter ensured enough supply, and if there are insufficient contracts, they will address this. Lian added local officials and energy distributors will be held accountable for the lack of supply in homes, but did not offer specifics.

Lian also said the central government will manage underground gas storage facilities and tanks to insulate people from the effects of fluctuating import prices.

How can China address the gas shortage?

New technologies like biomass fuel may help in the long-term, but to tackle the immediate problem facing cold residents, the country may also allow its residents to burn coal anew. That may threaten the nation’s green targets, Zhang explains.

Although the National Development and Reform Commission’s Lian said local governments must alleviate gas supply and price concerns in light of this shortage, budgets are stretched thin after two years of enforcing strict zero-COVID policies. Still, some experts say Beijing may provide funds to local governments to ensure households can receive gas.

The central government is concerned about the threat of further unrest, following the first major protests in China late last year amid anger over zero-COVID.

Neil Beveridge, senior energy analyst at Alliance Bernstein, says unrest is unlikely if judging by past shortages.

This time could be worse, however, with the cold wave across northern Asia expected to persist until the end of January. Industrial plants are poised to ramp up production this year, and with China’s gas market currently skewed toward addressing industrial demand, Beveridge says, “we could be looking at still quite a tight winter.”

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