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China's domestic LNG plants reopen after shutdowns as heating crisis eases

BEIJING, (Reuters) - At least 10 of China's domestic liquefied natural gas (LNG) plants have resumed output in the past week after the government cut off their supply, providing the first signs that the country's gas supply crunch is starting to ease, company sources said.

The return of the plants, which liquefy domestically produced gas that is then trucked to end-users, has raised LNG supply in China's interior, pushing nationwide LNG prices lower.

These restarts are also a sign that state-owned gas producers Sinopec and China National Petroleum Corp have resumed piping gas to the facilities after the government ordered them to divert shipments from the plants to residential users to make up a supply shortfall during the winter heating season.

Yangcheng Shuntianda Gas Corp, based in China's Shanxi province, southwest of the capital Beijing, has restarted its plant, with the capacity to liquefy 500,000 cubic metres of gas, after shutting in December, a sales manager at the company who only gave his surname of Wang told Reuters.

"We lost 20 million yuan ($3.2 million) each month because we weren't producing anything. Our boss was under extreme pressure from the bank to pay off loans," said Wang.

Yulin Huachen, which runs a similar-sized plant in neighbouring Shaanxi province, resumed half of its production last weekend after closing for more than two months, said a company sales manager, who declined to be identified as he was not authorize to speak to the media.

Sinopec and CNPC cut gas supplies to the LNG plants to meet the newly created demand from residential consumers. These buyers were converted to gas or electric heating ahead of this winter to reduce air pollution from coal-fired heating as part of the government's war on smog.

The companies could not cope with the extra demand because of inadequate infrastructure and insufficient domestic output. The government rules on the fuel switching also prioritised residential users over industrial consumers.

CNPC and Sinopec declined to comment on whether they have resumed piped gas shipments to the LNG users.

More of the LNG plants are expected to resume operations in the coming weeks as gas supplies improve, said Zhang Mengjie, gas analyst at Shandong-based Longzhong Information Group.

Data from Longzhong shows the LNG plants were operating at just 27 percent of capacity last week, versus 38 percent a year ago and a typical level of 50 percent.

The 27 percent is equivalent to the daily output of 23 million cubic metres, according to Reuters calculations, based on overall daily operating capacity of 85.6 million cubic metres.

Chinese LNG prices have fallen as the plants return to production and as some end-users remain closed for the Lunar New Year holiday.

The daily wholesale LNG price index tracking spot prices across the country assessed by industry publication fell 5.4 percent to 4,659 yuan per tonne from Monday to Wednesday.

"Demand from downstream users is not very good now as some of them remain on holiday and won't be back until next week," said Diao Zhouwei, a natural gas analyst at IHS Markit. "With the weather getting warmer, demand from residential users is declining, which leaves more fuel for the industrial sector."

($1 = 6.3275 Chinese yuan renminbi)

(Reporting by Muyu Xu and Josephine Mason; Editing by Christian Schmollinger)

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