(Bloomberg) -- A frigid winter is leading to power shortages in parts of China, driving up demand for diesel as factories rush to install generators to keep the lights on.
Some provinces have started rationing electricity to industrial and commercial users to make sure there’s enough power to heat homes during a colder-than-typical winter. That’s prompting factories to snap up portable generators and the diesel they run on to ensure their plants stay open to meet orders amid record-high exports from the country.
The Chinese meteorological authority earlier issued an orange alert nationwide - the second-highest level in its four-tier system - as a cold wave sweeps through the nation. With temperatures still expected to dip further, grid operators are prioritizing the supply of energy to homes and the community, leaving other customers to scramble for alternative power sources.
“Power cuts have brought us extra orders,” Huang Yu, a sales manager at Shandong Dianyuan Village Power Technology Co., a company that supplies generators of different sizes. “We have been quite busy since November, receiving non-stop orders from customers in Jiangsu and Zhejiang,” she said via phone.
The company, which has a wide range of generators including some large enough to power a small town, has sold more than 20 a day recently, more than triple the normal level, Huang said. Its social media account posted a video Dec. 17 showing trucks loading dozens of power generators getting ready for shipment to power-cut regions.
Wholesale diesel prices in China rose to the highest level since April, according to data from the country’s National Bureau of Statistics. Inventories of the fuel across the country fell 5.26% in the month to Dec. 25 to 20.76 million tons, according to information provider OilChem.
“If there is a shortfall in electricity, diesel is the most responsive energy to fill the gap,” Sengyick Tee, an analyst with Beijing-based SIA Energy said. “Even 0.5% of China’s electricity switching to power by diesel would make a large impact on diesel demand.”
China’s power demand has surged in the second-half of this year as its economy recovered from the pandemic and global demand for protective gear and medical equipment it produces soared. A colder-than-normal winter caused by a La Nina weather pattern added to that, boosting consumption by 11% in December, more than double the growth of a year ago, according to National Development and Reform Commission.
Coal supplies have also been tight amid safety checks at domestic mines and import restrictions, and natural gas has also been rationed to ensure supplies for heating. Governments cut electricity to some businesses in Hunan and Jiangxi provinces because of shortages, while Zhejiang officials also curtailed industrial power in order to meet emissions and efficiency goals for the five-year plan ending Thursday.
Beyond China, low temperatures are also affecting other nations across Northeast Asia. Japan’s spot power price extended its record-breaking rally as utilities struggle to keep pace with higher demand for heating, while South Korea is prepared to release state reserves of kerosene should supply of the heating fuel remain tight.
See also: Japan’s Utilities Face Prompt LNG Supply Crunch Amid Cold Blast
Diesel generators are often used as backups because the fuel is easy to find and relatively cheap. To be sure, the increased demand may mostly support off-spec or un-invoiced grades as small factories tend to buy cheap diesel from the black market, according to traders who participate in the market.
“Diesel demand from the power cuts could be quite big because there are lots of mechanical and electrical factories that will buy or lease diesel generators for replacement,” said Yuan Jun, a sales manager at Shenzhen-based SWT, one of China’s top generator suppliers.
(Adds details on situation across North Asia in 10th paragraph.)
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