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Economy

China stockpiles natural gas on painful memory of shortage

Reserves boosted to 16% from 6% of consumption

An LNG tanker berths at a port in Nantong, Jiangsu Province. The state-owned China National Petroleum Corp. is expected to step up investment in LNG terminals and underground storage facilities.   © Reuters

CHONGQING -- China will expand its natural gas reserves to prevent a repeat of last winter's crippling shortage that froze the nation's economy.

The National Development and Reform Commission, which guides national energy policy, announced on Friday a goal of boosting reserves to the equivalent of 16% of domestic consumption in 2020, up from below 6% today. The move could push up prices for liquefied natural gas worldwide, analysts say.

Chinese oil and gas companies, as well as regional governments, are required to maintain natural gas reserves. The state-owned China National Petroleum Corp. is a big player in the field, running terminals to import LNG and operating underground facilities that store natural gas transported from abroad and inside China through pipelines.

These suppliers will be punished if they do not sufficiently increase their storage capacities, according to the development commission.

China currently has 18 LNG terminals with a total receiving capacity of about 60 million tons. It plans to increase capacity to 77 million tons in 2020, a goal it might exceed. The country also plans to add more underground storage facilities to the current tally of 25, most of them operated by CNPC.

Investment is expected to total about 10 billion yuan ($1.57 billion) for LNG terminals and about 3 billion yuan for underground storage facilities. CNPC is stepping up efforts to acquire concessions for resources like natural gas and plans to double domestic natural gas production in 2020.

China's move to build up its reserves could affect the international LNG market. The country increased its LNG imports by about 50% last year to around 38.1 million tons, passing South Korea to become the world's second-largest importer. Many expect China to surpass top importer Japan, which took in about 80 million tons, sometime in the next decade.

"The Chinese government's actions could expand demand and push up LNG prices," said one energy analyst.

From the government's eyes, costly projects to build LNG and underground storage facilities have been slow to materialize even at its urging. Now companies face penalties, including having their license to sell natural gas revoked, if their storage capacity does not increase much, according to the development commission.

President Xi Jinping aims to reduce air pollution in major cities by switching from coal to natural gas for power plants and other facilities. China's natural gas consumption is expected to reach 360 billion cu. meters in 2020 compared with 230 billion cu. meters last year.

Xi ramped up his campaign against urban air pollution after cementing his rule at the twice-a-decade Communist Party congress last fall, but the transition to natural gas has not been smooth. Regional governments were overaggressive in following Xi's orders to close coal-burning facilities, creating a severe natural gas shortage that forced factories to shut down as Beijing directed suppliers to prioritize household heating over businesses.

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