27 Jan 2010 07:30

Guest Column: China's energy infrastructure feels the chill of shortages

By Richard Brubaker

In this month's energy guest column, Richard Brubaker, managing director of the Shanghai-based consultancy China Strategic Development Partners, breaks down recent news of electricity shortages in China.

In what may be the biggest sign of the problems that China's energy infrastructure faces, a recent Alibaba article "China's spreading power shortage by province" listed the provinces that are going through shortages (Henan, Hubei, Chongqing, Zhejiang, Shandong, Shanxi, Yunnan, and Guizhou), and by how much (between 5 percent and 20 percent short), and it is clear that something is going to give - and soon.

Go back two years when China was hit by a blizzard the knocked out many of China's North to South rail lines, which resulted in 17 provinces losing power, and fast forward to today (in a time where the export economy is off)... and there are still problems.

The recent Jan. 6 Wall Street Journal article, "Europe and Asia Struggle With Travel, Power Woes," says: China faces potential power shortages as parts of the country struggle with the coldest weather in decades, authorities said. The cold spell is expected to persist through the week, driving up demand for heating and electricity.

But in the China-based Global Times article from Dec. 31, "Power shortages worsen in Wuhan," the issue was already highlighted as one that Wuhan (Hubei province) was already fighting, and had been fighting for a very different reason: "As the coal used for power generation is still in short supply, residents' lives would be affected without the ban on industrial sectors," said Fu Jianjun, deputy general manager of Wuhan Power."

The severity of the problems which ultimately were highlighted in the Clean Techica article "Coal-Power Shortage Threatened in China:" The article said that "Any time coal reserves go lower than three days, coal-fired power plants must shut down. Eleven percent of the key coal producing provinces' power plants are close to getting to that point. Coal reserves at power stations are in dangerously short supply. As of Jan. 17, coal reserves in 598 major power plants were decreasing and were only enough to last for nine days. Coal storage in 205 power plants will last for seven days, an alarming level, the National Power Dispatch and Communication Center said."

This takes me back to the Steel Guru piece, "Chinese utilities accept 2010 coal price hikes in regions," from Dec. 26, where I think we hit bedrock on the issue:

A power company executive said that a few coal groups in China's top coal producing province Shanxi have asked to raise term prices by RMB 30 ($4.39) per ton to RMB 50 ($7.31) per ton with coal with calorific value of 5,000 kilocalorie per kilogram at around RMB 500 ($73.19) per ton after the hike. In the northern province of Heilongjiang, utilities and coal miners have agreed on a price hike of RMB 50 ($7.31) per ton to about RMB 390 ($57.09) per ton.

So, on Dec. 26 an increase in the price of coal was agreed upon, a week later the capital of Hubei province was reporting coal shortages, and now you have 10 provinces short of power. It is a condition that of course will have immediate economic and societal impacts, and is perhaps the key reason why the December smart grid conference in Beijing was packed.

The above is a personal opinion piece by the author. Its publication in no way implies that Interfax shares the views expressed in the article.

Richard Brubaker is the founder and managing director of China Strategic Development Partners. With almost 15 years of Asia experience Brubaker assists his clients (both Fortune 500 companies and SMEs) in understanding the China market, determining their own China platform and implementing effective strategies. This column was originally posted on his blog, All Roads Lead to China at http://www.allroadsleadtochina.com