China’s state-run natural gas producers have been told to sign annual supply contracts with major users by the end of this month, a senior planning official said April 27, as the country seeks to avoid a repeat of this winter’s severe gas shortages.

Freezing weather and a sweeping campaign to switch millions of homes and businesses from coal to natural gas to tackle smog led to a supply crunch earlier this year. Supplies were cut to some industrial users as authorities prioritized households.

“We remain under big pressure to ensure sufficient supplies this winter. ... We shall have more adequate preparations,” said Zhao Chenxi, head of the bureau of economic operations adjustment at the National Development and Reform Commission (NDRC).

Demand for gas is expected to grow strongly this year as Beijing promotes the cleaner-burning fuel and the economy improves, Zhao said during a media briefing.

China’s gas demand grew by nearly 10% in first-quarter 2018 to 71.2 billion cubic meters (Bcm) from a year earlier, following a 15% jump for full-year 2017.

Zhao said the annual contracts should include details of any supply cuts for major users during the peak winter heating season, which runs from mid-November to mid-March, stipulating the duration of such cuts and the volume to be reduced.

During periods of emergency situations, the additional cost of gas supply would be borne by either the buyer whose demand is above the contracted amount or the supplier who provides less than the contracted volumes, the NDRC said in a separate statement released later April 27.

China has already pledged to build more gas pipelines and storage facilities to help ensure adequate gas supplies in the future.

Storage Target

NDRC officials said on April 27 that gas suppliers—mainly state-owned companies like China National Petroleum Corp., Sinopec Group and China National Offshore Oil Corp.—will be required to have storage facilities able to meet at least 10% of their contracted sales by 2020.

Local authorities will need to have sufficient storage to cover three days of consumption in their administrative regions, and city gas distributors must have storage equal to 5% of their annual supplies within the same time frame.

For local gas distributors who fail to meet the storage obligations or refuse to sign up supply contracts, they risk losing their business licenses, the NDRC said.

Market-based pricing will also be introduced to boost investment in the sector, the NDRC officials said.

The government is also encouraging the trading of gas storage capacity on gas exchanges in the cities of Shanghai and Chongqing, the NDRC said in the later statement.

In areas where there is wide price discrepancies between high- and low-demand seasons, a special pricing policy will apply to retail users to even out the cost throughout the year, the statement said.

China operates 25 gas storage facilities with a total working volume of 11.7 Bcm, equal to less than 5% of the country’s gas consumption. This is well below the 20 percent mark for top gas consumers such as the U.S. and Russia.

Industry analysts have said China’s regulated gas pricing and near-monopoly in key distribution infrastructure are hurdles to future growth.