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China Could See Another Power Crunch This Summer

  • Despite an increase in domestic coal production, China faces the risk of another power crunch this summer.
  • Chinese utilities are burning low-quality coal.
  • Miners don't have much incentive to produce more high quality coal due to price caps.

Despite a boom in coal production in recent months, China could experience another power crunch this summer as miners race to meet government targets with lower-quality coal, analysts and traders told Reuters.

Faced with power shortages last autumn, Chinese authorities ordered an increase in domestic coal production as global coal prices soared. However, Chinese miners are looking to meet the required quantity regardless of the quality, which is often low and less efficient when burnt at coal-fired power stations.

"For miners, they don't have much incentive to produce high quality coal as margins are so low due to the price caps. Their priority is to churn out enough volume of coal to fulfil the targets set by government," a coal trader based in China told Reuters' Muyu Xu.

In March, China's daily coal production hit a record high as it jumped by 15 percent compared to March 2021.

But as coal use at utilities has risen this year, the lower-quality fuel which burns quicker has resulted in basically the same levels of power generation, another trader based in China told Reuters.

China has put more emphasis on energy security in recent months. Earlier this year, China said it would continue to maximize the use of coal in the coming years as it caters to its energy security, despite pledges to contribute to global efforts to reduce emissions.

Chinese President Xi Jinping has told representatives from its biggest coal-producing region, Inner Mongolia, that China "could not part from reality" and that it is "rich in coal, poor in oil and short of gas." The energy transition is a long process, and China cannot just "slam the brakes" on coal, according to Xi.

China is concerned about its energy security after the autumn 2021 power crisis and, most recently, the Russian invasion of Ukraine, which pushed energy commodity prices sky-high. 

By Charles Kennedy for Oilprice.com

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