Hourly operations of gas-fired power plants
In China, every province sets the power price for the different fuels in the fuel mix. A common stipulation, albeit not identical in all provinces, gives a higher power price for operators of gas plants that run for less than 3500 hours per year. After this number of operating hours, the power price obtained by operators is usually reduced to a lower level. Since 2019, operational hours for 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 utilization of gas-fired power plants. The hours are reported on a national basis.
Hourly operations for August
The hourly operations of gas-fired power plants were 259 in August, and lower than expected. This was 27 hours less than in August 2020. We estimate that gas in power averaged 37.8 GW for August, just 0.4 GW higher year on year. This generation number is not published anywhere and is our in-house estimate. Over the last year, China has added 11 GW of new gas-fired power plant capacity. If the number of hourly operations had remained unchanged from August 2020, we would have seen power generation of 41 GW for August 2021, which was close to our assumption.
Forecast for Q4 adjusted lower by 3 GW
Due to the slowdown in August, not only for gas-fired power generation but also for overall power demand (see spotlight Sept. 15), we have now adjusted our forecast for gas-fired power generation lower for Q4. We assume gas-fired power generation will average 31 GW, a decline of about 3 GW compared to our previous forecast. This adjustment will bring cumulative hours of operation of gas-fired power plants close to the (very similar) annual levels observed in the previous two years. Essentially, in addition to the impact of rising spot LNG 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 cu m/d decline in gas demand, and we now assume gas demand for power generation for Q4 2021 will average 138 million cu m/d. This is very similar to our estimate of 140 million cu m/d of gas demand for power generation for Q4 2020. Despite the growth in power plant capacity, we do not see a year-on-year increase in output for the fourth quarter – mainly due to higher utilization rates in the early part of the year.