Spotlight: China’s use of gas for power generation expected to decline in fourth quarter

Strong points

Gas-fired power generation in August lower than expected

Cumulative hourly operation of gas power plants still higher than normal

Our gas-in-power assumption adjusted down by 3 GW for Q4

A version of this S&P Global Platts Analytics Spotlight was first published on September 24.

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Hourly Gas Power Plant Operations

In China, each province sets the price of electricity for the different fuels in the energy mix. A common stipulation, although not identical in all provinces, provides for a higher electricity price for operators of gas-fired power plants that operate less than 3,500 hours per year. After this number of operating hours, the price of electricity obtained by the operators is generally reduced to a lower level. Since 2019, the operating hours of gas-fired power plants in China have never exceeded this threshold on a monthly level (3500/12). Therefore, this policy is a key indicator when looking at the use of gas-fired power plants. Hours are reported on a national basis.

Hourly operations for the month of August

Hourly gas-fired power plant operations were 259 in August, and below expectations. This was 27 hours less than in August 2020. We estimate that gas in power averaged 37.8 GW for the month of August, just 0.4 GW more than year over year. the other. This generation number is not published anywhere and is our internal estimate. Over the past year, China has added 11 GW of new gas-fired power plant capacity. If the number of hourly operations had remained unchanged compared to August 2020, we would have seen an electricity production of 41 GW for August 2021, which was close to our assumption.

Forecast for Q4 adjusted down 3 GW

Due to the slowdown in August, not only for gas-fired electricity generation, but also for overall electricity demand (see Spotlight on September 15), we have now lowered our forecast for gas-fired power generation for the fourth quarter. We assume that gas-fired power generation will average 31 GW, down about 3 GW from our previous forecast. This adjustment will bring the cumulative operating hours of gas-fired power plants back to levels close to the annual levels (very close) observed in the previous two years. Essentially, in addition to the impact of higher LNG spot prices, we believe operators are running out of hours, and we are now targeting the hourly levels seen previously.

The change in our assumption is equivalent to a 14 million m3/d drop in gas demand, and we now assume that gas demand for power generation in Q4 2021 will average 138 million m3/d. This is very similar to our estimate of 140 million m3/d of gas demand for power generation for the fourth quarter of 2020. year-over-year for the fourth quarter – primarily due to higher utilization rates at the start of the year.

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