Capacity growth part of country's efforts to avoid repeat of winter supply shortages

State-owned China Petroleum and Chemical Corp, or Sinopec, is building natural gas storage facilities with a total capacity of 55.6 billion cubic meters in central Henan province, in an effort to avoid gas shortages such as those seen during cold snaps last winter.

The gas storage cluster, which will comprise 16 facilities, will take advantage of disused oil and gas fields in the region, including Zhongyuan Oilfield, which has entered its final stage after more than 40 years of exploration, the company said.

"After four decades of development, some underground reservoirs have formed an enclosed space that provides favorable conditions for gas storage," said Li Cungui, director of the oil and gas development management department at Zhongyuan Oilfield Branch.

It is the latest effort among China's major oil and gas players to expand their gas storage capacity. The move follows China's largest petroleum company, China National Petroleum Corp's announcement of 20 billion cu m of underground gas storage in Northeast China.

China currently houses 25 underground natural gas storage facilities with a designed capacity of 41.5 billion cu m. The government aims to increase working storage capacity to more than 35 billion cu m by 2030, equal to between 4.8 percent and 5.8 percent of actual demand.

The current storage capacity in China is far from sufficient to hedge against shortages in the natural gas supply. In comparison, the world average is 11.7 percent.

Analysts said China should further encourage construction of gas storage tanks to prevent future gas shortages, especially given the country's high dependence on oil and gas imports.

"China's current storage capacity is a bottleneck. The country's plan to add underground gas storage should help ease the pressure of peak gas demand in winter," said Wang Lu, Asia-Pacific oil and gas analyst at Bloomberg Intelligence.

Bloomberg Intelligence estimates that nationwide gas storage capacity will rise to 4.1 percent of demand in 2020, compared with 2.8 percent in 2015.

Sinopec's first gas storage facility in the region, Wen 96, has a capacity of 588 million cu m and has been in operation since 2012. Construction at the nearby Wen 23 storage facility, with a planned capacity of 1.04 billion cu m, is 69.1 percent completed.

The company plans to build five additional storage units in the region before 2020.