Spot electricity prices in Guangdong leapt to almost 680 yuan per megawatt-hour on 14 April — nearly double the province’s March average — after supplies of seaborne liquefied natural gas tightened amid the Iran war. Guangdong, a manufacturing powerhouse about the size of South Korea, depends on China’s largest fleet of gas-fired power stations and has seen LNG deliveries fall nearly 40% from the same period in 2025. Industrial demand, a warmer-than-normal spring and coal-plant maintenance have added further pressure on the market, even as roughly 80% of industrial consumption is covered by lower-priced annual contracts.

Supply shock meets market reform

The immediate cause of the price jump was a sharp squeeze on LNG arriving by sea. Ship-tracking data compiled by Kpler show deliveries to Guangdong have fallen by nearly 40% compared with the same period in 2025. That shortfall matters for Guangdong because the province hosts a large share of China’s gas-fired generation and about one-fifth of the country’s gas import facilities.

Guangdong moved early to open its power market. All its generators must bid through the province’s power exchange, so wholesale spot prices play a meaningful role even when most demand is locked in by contracts. "Spot transactions, even as a small portion of total supply, play a critical role in anchoring pricing for monthly and long-term contracts," said Sharon Feng, special adviser at Azure International. "Gas-fired generation, while limited in scale, can materially influence system pricing by setting the marginal clearing price when dispatched."

The market design means that when gas units set a high marginal price on the exchange, other generators — and ultimately consumers buying on short notice — face higher costs. That effect was visible in mid-April when spot rates spiked toward the 680 yuan level, a three-year high.

Power exchanges were intended to bring price signals and efficiency. Now they're also exposing users to global fuel shocks.

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Why LNG costs rose

Even before the Iran war, seaborne LNG was already a pricier option for producing electricity in Guangdong. The conflict pushed costs higher by choking traffic through the Strait of Hormuz — a key artery for Persian Gulf shipments — and disrupting some long-term deliveries.

Guangdong Energy Group, the province's big state-run power firm, has a ten-year purchase contract with QatarEnergy that has been suspended since the strait was effectively blocked to traffic.

On the power exchange, gas was reported to cost more than 60% above renewable alternatives. That gap makes gas an increasingly uneconomic choice when supplies are stable, but when coal plants are offline for maintenance or demand peaks, gas plants are often the only flexible source that can ramp up quickly — and their bids set the spot clearing price.

Demand is rising as supply tightens

Output of the province’s factories and data centres has recovered, pushing electricity use higher. Consumption in Guangdong climbed 7.6 per cent in the first quarter as export-oriented manufacturing rebounded and data-centre build-out accelerated to support artificial intelligence workloads. That recovery matters because more consumption raises the chance that generators will need to draw on spot purchases to meet daily swings.

Analysts also point to a warmer-than-normal spring and seasonal maintenance at several coal-fired plants as contributors to the imbalance. Coal remains China’s main power source, but scheduled maintenance reduces available capacity and forces systems to call on gas-fired units.

Penny Chen, senior director at Fitch Ratings, said the province’s gas import terminals may increasingly sit idle as Guangdong leans back on coal to meet peak summer demand. And when coal gets called on more often, the system loses the flexible swing capacity that gas provides — capacity that has become a pricing focal point under the province’s market model.

Who pays and what changes

Industrial users in Guangdong have roughly 80 per cent of their electricity covered by lower-priced annual contracts, insulating many from the immediate spot-price surge.

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Guangdong Energy Group’s ten-year LNG purchase agreement with QatarEnergy has been suspended since traffic through the Strait of Hormuz was effectively blocked.

This article was created with AI assistance.