China Reverses Coal Ban After Gas Shortage Leaves Residents Freezing

A Chinese boy runs passed a coal fired power plant near his house on the outskirts of Beijing on Nov. 27 2015

A Chinese boy runs passed a coal fired power plant near his house on the outskirts of Beijing on Nov. 27 2015

An aggressive government campaign to heat millions of homes and fuel industrial boilers with gas has pushed domestic LNG prices to record highs, with some industrial and commercial users facing shortages or unable to afford the high cost.

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. China's domestic LNG price has risen to its highest since 2011, topping 7,000 yuan ($1,061) a tonne in the last week of November.

The peak from the previous winter was $9.75 per mmBtu, hit in early January this year, and the price is some 82 percent higher than the $5.40 low reached during the low demand summer period.

China's oil and gas producers appear to be playing their part by boosting domestic natural gas output, with production up 15.4 percent to 12.4 billion cubic meters (bcm) in October from the same month previous year.

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.

Year-to-date gas shipments were 60.7 million tonnes, on track to hit a record.

The meetings should warn the market participants that the government will punish any companies found to be involved in manipulating prices or monopolising the market, the official at the National Development and Reform Commission (NDRC) said.

While LNG is likely to move to surplus in 2018 and 2019 as new projects come online, mainly in Australia and the United States, the current market is showing signs of being under-supplied for the northern winter.