Chemical firms using natural gas as feedstock in southwestern Chinese provinces were facing mounting risks to scale down and even close operations due to gas shortages and rising gas prices, an industry newspaper reported on Thursday.

These firms, including urea and methanol makers such as Guizhou Chitianhua Co , Yunnan Yuntianhua and Sichuan Chemical Industry Holding Co, need 9.5 billion cubic metres (bcm) of gas a year for production purposes, but actual supplies were only 6 bcm, the China Chemical Industry News reported.

A 450,000 tonnes-per-year (tpy) synthetic ammonia facility and an 800,000-tpy urea unit, built by Jiangfeng Chemicals and which cost 3 billion yuan, have been idled since they were ready for production in August 2010 because of a gas shortage, the report said.

The industry was taking a further hit by a recent government approval in Sichuan, China's largest gas user by region, for leading gas supplier PetroChina to charge higher prices on new gas supplies.

Excluding tranportation costs, PetroChina will charge 2.35 yuan per cubic metre for gas imported from Turkmenistan or sourced from rival Sinopec's Puguang gasfield, a price far higher than those for existing supplies that ranged from 0.92 to 1.9 yuan a cubic metre, the newspaper report said.

China's domestic gas production trailed demand amid robust economic expansion, and the shortages were in part exacerbated by state-set low prices.

For now, nearly 20 percent of domestic gas consumption is imported either by pipeline or by liquefied natural gas carriers. China only started pipeline imported gas in 2009 and LNG in 2006.

PetroChina has been incurring losses for gas imports from Turkmenistan since late 2009, but China recently offered tax rebates for gas imports, and higher gas selling prices suggest cost pressures for importers eased.

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