March 22, 2018 / 9:54 AM / a year ago

China's Chongqing gas exchange seeks producer allocations for mid-year launch

* Eyes gas storage as future product to trade

* Limited supply, lack of open access to pipeline may curb prospects

* Storage shortage remains a hurdle - analyst

By Chen Aizhu

CHONGQING, China, March 22 (Reuters) - China’s Chongqing gas exchange is tapping state producers to allocate supplies to boost liquidity ahead of a planned launch by mid-year, while setting its sights on the country’s underground gas storage as a future trading product.

The exchange, China’s latest attempt to develop a traded gas market, is aiming to launch its first contract of pipeline gas by the middle of the year, a timeline slightly behind expectations, exchange officials told Reuters this week.

The request for providing liquidity to the exchange was made at a meeting in early March hosted by the National Development & Reform Commission, the main government umbrella for establishing the Chongqing exchange, executives said.

“All is set ready (for the launch)...we’ve completed the contract design, the trading rules and cleared regulatory approval,” said Song Dacai, chairman of the exchange’s supervisory committee. He said over 500 participants have been approved for trading.

“We’re communicating with national oil companies over supply allocations they are able to put on the exchange,” said Song.

The planned launch comes after the world’s No.3 gas consumer experienced a serious supply crunch over the past winter. Suppliers struggled to keep homes warm and factories running amid a massive government-led gasification push.

State-run producers, namely PetroChina, Sinopec and CNOOC, are expected to make nominations, including annual, monthly and weekly volumes. The companies did not immediately respond to a request for comment on the matter.

However, the allocations could be a challenge in a tight market, as companies will need to first meet existing demand before they can allocate excess supplies to the new exchange, analysts said.

“Beijing will need to allow open access to the state- controlled pipelines and storage facilities to generate active trade on the exchange,” said Chen Zhu, managing director with consultancy SIA Energy.

The Shanghai Oil and Gas Exchange, a competitor launched in 2015, failed to attract much liquidity during most of its first few years of trade because of a lack of mechanism for producers to provide volumes to trade.

Also, more storage is needed. China’s current gas storage working capacity is barely able to supply 4 percent of its total consumption, way below the international average of 10-12 percent. (Reporting by Chen Aizhu Editing by Kenneth Maxwell)

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