Cold weather exhausts natural gas in China

Attempts to improve air quality in Beijing and other northern Chinese cities by switching home heating from coal to natural gas are having an unintended effect on the chemical industry. Unable to obtain gas needed to run some of their plants, BASF and other firms have had to temporarily shut them down.

The problem is emerging as the weather has become colder in recent weeks. Natural gas is so scarce in the north that the government has ordered major energy companies to reroute gas meant for industrial users in the south.

On Dec. 16, China’s powerful National Development & Reform Commission mandated provincial government and state-owned energy companies—including Sinopec, PetroChina, and China National Offshore Oil—to assist in supplying natural gas to cities and counties in the north. The order also allows some coal-fired power plants that were recently closed to resume production.

In the chemical industry, the reallocation of gas is mostly affecting methanol and fertilizer producers, especially in the southwest of the country, says Kelly Cui, senior chemicals consultant at the Shanghai office of the consulting firm Wood Mackenzie. The shortages will extend until February, when the weather starts to warm, she expects. World prices of commodity fertilizers may temporarily rise, Cui warns, because China is an exporter.

China’s largest fertilizer producer, Yunnan Yuntianhua, released a statement to the Shanghai Stock Exchange disclosing that its facility in Zhaotong, Yunnan, has stopped production indefinitely due to lack of natural gas.

Beyond basic materials like fertilizers, BASF has had to stop production at a $1.2 billion plant in Chongqing, 1,700 km west of Shanghai, that produces methylene diphenyl diisocyanate (MDI), a polyurethane raw material.

BASF says the natural gas shortage has halted production at the company’s syngas supplier. “We have been communicating with our customers proactively and we shall inform them of the MDI plant restart as soon as syngas supply resumes,” the firm says.

The MDI plant, which opened in 2015, already suffered from chlorine shortages earlier this year that forced it to operate at less than full capacity.