Residents in several Chinese Provinces are going without natural gas heat during the evenings as their local provinces lack funds to purchase sufficient gas for the heating season, after spending enormous funds on implementing the COVID lockdowns using mass testing. Many of those provinces even lack funds for paying their employees. This is China’s third energy crisis in five years. In 2017, China banned coal-fired boilers across large areas of northern China in favor of natural gas. It was a quick fix for its climate program, but residents soon found there was not enough natural gas for all the new boilers. In 2021, the price of coal jumped higher than the regulated price at which utilities could sell electricity generated from coal. In order to not lose money, utilities temporarily closed power plants, resulting in blackouts.
The current situation has exposed weaknesses in China’s energy regulations and infrastructure, accentuated by the global energy turmoil that has occurred as a result of Russia’s invasion of Ukraine. Russia has long been a major supplier of natural gas to China and Europe. When Russia stopped exporting gas to Europe last summer, lack of supply and continued demand raised world prices as countries stockpiled supplies. A warm winter lowered natural gas prices in Europe, but very cold weather has increased those prices in China.
At the same time, China’s provincial and municipal governments have reduced customary subsidies for natural gas consumption that used to keep a lid on heating bills. The national government told the local governments to provide heat, without giving them money to pay for it. As a result, natural gas is effectively being rationed, with households receiving the minimum needed for cooking food but very little for heat.
Temperatures in China have become unusually cold. Numerous weather stations in northernmost China’s Heilongjiang Province reached the lowest temperatures they had ever recorded. Mohe City, the northernmost city in China, reached lows for three straight days below minus 50 degrees Celsius (-58 F). China’s meteorology agency has issued nationwide warnings of continued cold weather.
The national government in Beijing is aware of the natural gas shortages. Lian Weiliang, vice chairman of the National Development and Reform Commission, China’s top economic planning agency, indicated that the national government would hold local officials responsible for supplying homes, but did not say that the national government would provide money to help them. He indicated that China will build more natural gas storage sites to avoid similar problems in the future.
It is believed that China has enough natural gas to make it through the winter, but that pricing regulations and declining subsidies are preventing gas from reaching households in northern China when temperatures drop. While much of the world shunned Russian energy after its invasion of Ukraine, China increased its purchases of natural gas from Russia. Imports from Russia of liquefied natural gas, which are transported by ship, rose 42.3 percent last year, as Chinese companies bought cargos that businesses in Japan and elsewhere were no longer willing to buy. Further, Russia and China are finalizing discussions on the construction of the Power of Siberia 2 Pipeline, which would provide much more natural gas to China in the future.
Much of the Russian gas China imported was at very high prices. But Chinese regulations strictly limit the price at which municipal and township gas distributors are allowed to sell gas to households. This winter, the wholesale cost of gas is up to three times the price that distributors are allowed to charge residential customers. Distributors are allowed to pass along extra costs to industrial and business users of gas, but not to individuals. So when prices rise, the companies have an incentive to cut off homes and sell mostly to industrial and commercial users.
In populous Hebei Province near Beijing, many local gas companies have been partly privatized in recent years and the local government is under severe financial strain. Its main source of revenue–sales of land leases to developers–dried up last year as the pandemic costs skyrocketed. The acreage leased to developers dropped 53 percent in 2022 as the real estate sector ran into financial difficulties. Hebei Province wraps around three sides of Beijing and has 74.5 million people. Over the past five years, the national government has been insistent that Hebei homes and businesses switch to natural gas because emissions from their use of coal blow into Beijing. As a result, many Hebei residents no longer have coal or coal-burning stoves and must rely on what natural gas they can secure.
While Chinese residents are suffering, it seems that Europe is getting by this winter. Many in Europe worriedhow they would heat their homes this winter after Russia reduced and then halted natural gas shipments to the continent. While its warm winter has helped, gas companies in Europe raised their prices, encouraging conservation, and governments have subsidized consumers to offset at least part of the extra cost. European companies also accumulated large stockpiles of natural gas prior to the winter season.
Government policies are causing residents of many provinces in China much discomfort this winter as there is supposedly insufficient natural gas to heat their homes, while blistering cold temperatures are hitting them. Rather than inadequate supplies of natural gas, it may be the pricing policies that are affecting supply. Prices have jumped, but regulations only allow those price increases to be passed onto industrial and commercial customers. With gas companies being partially deregulated, they cannot afford to under-sell the gas to residential customers. Since China has forced conversion from coal to gas, the residents have little option but to freeze from the cold weather, particularly since the national government is so far unwilling to subsidize the cost.
Americans should note that government policy and the elimination of options are causing pain to local residents in China. This example is similar to the path that the energy program of the Biden Administration is taking. President Biden wants to electrify the U.S. economy, while taking away natural gas for heating and cooking, and taking away gasoline and diesel for fueling automobiles and trucks. Further, he wants all the electricity to be produced by non-carbon sources, mostly wind and solar power. The lack of diversity of supply would put the U.S. energy system in a devastating position far exceeding the above situation in China. Eliminating options is harmful to national security, to livelihoods, and to the American economy.