China’s energy crisis raises alarm bells and calls for more coal

  • Governor of Jilin Province calls for more coal imports
  • Environmental controls and soaring prices undermine electricity production
  • Fears as power cuts hit traffic lights, 3G networks, factories

SHANGHAI, Sept.28 (Reuters) – As a severe electricity crisis shakes the industrial heartland of northeast China, senior officials face increasing pressure from alarmed citizens to increase coal imports in order to keep the lights on, the factories open and even the water supply.

With power shortages caused by the scarcity of coal supplies crippling large sections of the industry, the governor of Jilin Province, one of the hardest hit in the world’s No.2 economy, called for an increase in coal imports, while an association of power companies said the supply was being expanded “at all costs”.

News organizations and social media have published reports and articles claiming that the lack of electricity in the northeast has shut down traffic lights, residential elevators and 3G cellphone coverage, as well as triggering closures factories. A utility in Jilin even warned that power outages could disrupt the water supply at any time, before apologizing for setting off the alarm.

Cities like Shenyang and Dalian – which are home to more than 13 million people – have been affected, with disruptions at factories owned by suppliers to global companies like Apple (AAPL.O) and Tesla (TSLA.O). Jilin is one of more than 10 provinces that have been forced to ration electricity as producers feel the heat of soaring coal prices that they cannot pass on to consumers. Read more

Speaking to local power companies on Monday, Han Jun, the governor of Jilin province, with a population of nearly 25 million, said that “several channels” must be put in place to guarantee the coal supply, and that China should source more from Russia, Mongolia and Indonesia.

Han said the province will also urgently send special teams to secure supply contracts to the neighboring region of Inner Mongolia, according to the province’s official social media account WeChat.

Goldman Sachs has estimated that up to 44% of China’s industrial activity has been affected by power shortages, potentially causing a 1 percentage point drop in annualized GDP growth in the third quarter, and a decline by 2 percentage points from October to December.

He said in a note released on Tuesday that he was lowering his 2021 GDP growth forecast for China to 7.8%, from 8.2% previously. Read more

‘AT ALL COSTS’

The electricity crisis set in as a shortage of coal supplies, tougher greenhouse gas emission standards and strong industry demand pushed coal prices to new heights – China’s thermal coal futures rose 7% on Tuesday at 05:00 GMT to a record 1,324 yuan ($ 204.76) per tonne.

Rationing has been implemented during peak hours in many parts of northeast China since last week, triggering state media reports of power disruptions in many cities. and arousing the concern of avid social media users nationwide.

As some northeast candlelit-operated stores and malls closed early, posts on China’s Twitter-like service Weibo expressed concern about the water after a utility in Jilin warned users that power shortages could affect supply at any time.

Jilin Governor Han urged companies to shoulder their “social responsibilities” and “overcome the hardships” caused by rising coal prices.

The China Electricity Council, which represents the country’s electricity providers, said in a note Monday that coal-fired power companies are “now expanding their supply channels at all costs” to secure heat supply and in electricity in winter.

He said China must increase the production and supply of coal while ensuring safety and environmental protection. More medium- and long-term contracts were to be signed to increase plant stocks before winter.

Coal traders noted that finding new sources of imports may be easier said than done.

“Russia must first meet demand from Europe, Japan and South Korea,” said a trader based in northeast China. “Indonesia’s export shipments have been hampered by the rainy weather of the past two months and Mongolian exports, mostly by truck, are low.

David Fishman, an energy policy researcher in China and director of the consulting firm Lantau Group, said flaws in China’s pricing system were ultimately to blame for the current shortages.

“In the short term, the only backup policies that make sense are to get more coal out of the ground, which is bound to be an unpopular idea, or to charge end users more for their electricity,” Fishman said.

Policymakers had previously warned that China needs to build more coal-fired power plants to offset potential power shortages during the 2021-2025 period, but the utilization rates of existing plants remain low.

Lauri Myllyvirta, chief analyst at the Helsinki-based Energy and Clean Air Research Center, said northeast China currently has 100 gigawatts of coal production capacity, which would be more than sufficient to meet demand if factories were encouraged to buy more coal. .

“Not a single region in the network has reported peak loads that would even come close to exhausting available generation capacity,” he said.

Reporting by David Stanway; Additional reporting by Chen Aizhu in Singapore; Editing by Kenneth Maxwell

Our standards: Thomson Reuters Trust Principles.

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