China orders top energy firms to secure supplies at all costs

A severe energy crisis has gripped China.
A severe energy crisis has gripped China.PHOTO: AFP

SINGAPORE (BLOOMBERG) - China's central government officials ordered the country's top state-owned energy companies - from coal to electricity and oil - to secure supplies for this winter at all costs, according to sources familiar with the matter.

The order came directly from Vice-Premier Han Zheng, who supervises the nation's energy sector and industrial production, and was delivered during an emergency meeting earlier this week with officials from Beijing's state-owned assets regulator and economic planning agency, the sources said.

Blackouts will not be tolerated, the people said.

Chinese coal futures earlier surged to a record as the country grapples with shortages of the fuel ahead of a week-long holiday. Prices have more than doubled this year amid soaring electricity demand from factories and slow output growth from mines.

The emergency meeting underscores the critical situation in China. A severe energy crisis has gripped the country, and several regions have had to curtail power to the industrial sector, while some residential areas have even faced sudden blackouts. China's power crunch is unleashing turmoil in the global commodities markets, fueling rallies in everything from fertiliser to silicon.

Calls to the state council went unanswered outside business hours.

Volatility in the energy markets is poised to intensify on the order from the central government, said SEB chief commodities analyst Bjarne Schieldrop.

China's statement "to me implies that we are in no way on a verge of a cool-off. Rather it looks like it is going get even more crazy", he said, adding that they will bid whatever it takes to win a bidding war for a cargo of coal or liquefied natural gas.

In a sign of how worried Chinese officials are, Premier Li Keqiang has vowed that every effort will be taken to maintain economic growth. China will ensure the needs of basic livelihoods are met and will keep industrial and supply chains stable, Mr Li was cited as saying by China National radio during a meeting with foreign diplomats on Thursday.

China's move "brings security of supply back on the forefront", said Ms Leslie Palti-Guzman, president of New York-based consultancy Gas Vista.

This is bad news for European governments and consumers who will deal with elevated gas and electricity prices for the rest of the winter as they compete with China for supply, she said.