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In mid-May 2021, Guangdong started to experience a power supply
crunch that led to power rationing in the industrial sector. This
was the result of a combination of factors on both supply and
demand. On one hand, strong economic rebound and an early heat wave
boosted power demand. On the other hand, hydropower imports, which
were 30% of the provincial power supply in 2020, remained flat
owing to low hydro level and high power demand in the exporting
region. Local thermal power, including gas units, therefore had to
run at much higher utilization rates than normal. The risk of power
supply shortage will remain through the rest of the summer as the
peak demand season doesn't come until July and August.
Effective 1 June 2021, the Development and Reform Commission of
Guangdong suspended the low gas-fired power on-grid tariffs for
generation beyond annual utilization hours, allowing gas-fired
power above planned utilization hours to enjoy the same tariffs for
planned utilization hours. The new tariffs represent a significant
increase for gas-fired power generation above the planned annual
utilization rate—31-38%—depending on unit type.
Still, feed gas cost will still be a challenge. The new tariffs
can cover short-run marginal costs up to $10.4/MMBtu landed price
of LNG for 9H units, which account for 5% of the 29 GW operating
capacity. The break-even prices are lower for other units—$9.4
for 9F units and $8.8 for 9E units. In comparison, the current LNG
spot prices to North Asia are above $11/MMBtu for July and August
deliveries.
A policy-based decision to run more gas-fired power could lead
to significant incremental LNG demand and drive up spot prices. If
all 9F units, or 65% of the current capacity, run at a 60% capacity
factor in July and August, the additional gas demand could be 1.4
Bcm in just these two months, equivalent to 1 million metric tons
or 14 cargoes.
Learn more about our coverage of the Asia Pacific energy market
through our Asia Pacific Regional Integrated Service.
Jenny Yang is a Senior Director covering
Greater China's gas and LNG analysis.
Xiao Lu is an Associate Director covering
Greater China's gas and power analysis.
