The 6.8-magnitude earthquake in China's drought-hit Sichuan province, one of the country's top resource suppliers, has had limited impact across the key commodities produced there, including natural gas, hydro power, lithium, aluminum and silicon, information collected by S&P Global Commodity Insights showed.
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Register NowThe earthquake hit Luding County in Sichan province at 12:52 pm Sept. 5, with the epicenter 226 km away from the provincial capital city Chengdu, according to the China Earthquake Networks Center.
Sichuan is rich in natural gas, hydro power, lithium, aluminum and silicon production but has been suffering from severe power shortages caused by drought this summer, with knock-on impacts on energy-intensive sectors, as well as a resurgence of COVID-19 since August.
In terms of oil product demand and supply, analysts expected that gasoline and gasoil demand for rescue efforts could offset the reduction in consumption due to COVID-related lockdowns in the province. The government introduced a lockdown in Chengdu on Sept. 1 that was initially set to last until Sept. 4, but has since been extended to Sept. 7.
Sichuan's gasoline demand averages about 210,000 b/d normally, with gasoil demand at 195,000 b/d, according to Platts Analytics, a small fraction of China's total gasoline demand of about 3.5 million b/d and gasoil demand of 3.9 million b/d.
The earthquake had no impact on the province's only large integrated refining asset, PetroChina's 200,000 b/d Sichuan Petrochemical in Pengzhou city, according to a refinery source. The refinery, which has been operating with staff locked in at the site since the start of the month due to COVID controls, planned to operate at 85% of its capacity in September, down from 88% in August, amid relatively high stocks and low demand, according to the source.
Gas and oil production
In the upstream oil and gas sector, neither PetroChina nor Sinopec reported any interruption in production at or transmission from their assets in the area.
Sichuan is a major gas producer, with output at 27.84 Bcm in H1 accounting for a quarter of China's total production, according the National Bureau of Statistics.
The province's crude output is comparatively small at just 59,000 mt (2,400 b/d) in H1, compared to China's total output of 102.88 million mt (4.17 million b/d).
The epicenter of the earthquake was around 180-300 km from Sinopec's main gas fields and working areas, and no casualties or property losses were caused, Sinopec's Southwest Petroleum Bureau said on WeChat Sept. 5.
"Gas production and transmission in the region are currently stable," it said.
PetroChina has not commented publicly but its oil and gas fields in Sichuan and the neighboring Chongqing city are even further away so likely suffered no impact.
State-owned oil and gas infrastructure operator PipeChina said Sept. 6 on WeChat that the Lancheng-Chongqing oil products pipeline was running as usual, transporting some 20,000 mt/day, and that its natural gas pipeline network in the region was delivering normally at nearly 10 million cu m/day to the Sichuan-Chongqing area.
Power generation
No disruption was reported at the four large hydropower plants located in the epicenter region, local media reported citing local government officials.
Hydropower accounts for 85% of Sichuan's generation mix and the province is normally an exporter to developed coastal regions like Shanghai, Zhejiang and Jiangsu. However, production this summer has been severely impacted by drought, with power rationing for energy-intensive industrial users introduced in August.
Huadian, the state-owned generation utility that operates the Luding hydropower station in Sichuan, said the 3.78 TWh/year hydropower station was functioning normally, though at less than half of installed capacity.
It is feared, however, that there could be impacts on local hydropower supplies caused by a secondary disaster following the earthquake, such as mudflow.
There was some power supply disruption due to the earthquake, with 43,158 electricity users cut off due to transformers shutting and transmission lines tripping, according to information from the State Grid Sichuan Electric Power Company. Electricity supply to 21,922 users had been recovered as of Sept. 6.
Aluminum, lithium, silicon
The earthquake has had no impact on the production of local primary aluminum smelters and lithium chemicals producers, as their resumption from power shortages remains slow due to COVID controls.
Most of primary aluminum smelters suspended production in August due to the power shortages. Some are resuming the curtailed capacity but it will take some time due to the technical factors and current thin margins.
Youngy Co. Ltd, which operates a lithium mine in Ganzi prefecture said the earthquake had not impacted operations, and there were no reports from other operators of disruption.
But lithium chemicals have been more suffered from transportation interruption due to the COVID movement restrictions, although the major producers have returned to operation following the power crisis.
The earthquake has limited impact on Sichuan's silicon production on top of the existing negative factors, although it could support sentiment for a further price rally, market sources said.