By Jim Bai and Tom Miles

BEIJING, Nov 24 (Reuters) - China's energy firms are reducing gas supplies to industry to avoid having to cut off households during winter, but risking more factory shutdowns, dampening production and raising costs as shortages may worsen.
The shortfalls began this month when early, heavy snow hit northern China, spiking up heating demand and forcing PetroChina to divert south China's supplies northwards. The cold spell then hit the south, adding to demand and slowing supplies.
PetroChina, the country's leading gas supplier, said on Tuesday it would make a second cut of 3 million cubic metres (mcm) in the daily amount it delivers to industrial users in northern China, reducing their volumes by another 10 percent.
PetroChina has also cut 3 mcm per day, or 8 percent, from supplies to firms in the Yangtze River delta and the provinces of Hunan and Hubei, as well as trimming flows to industries in the southwest and northwest, the main gas producing regions.
As demand peaks in December and January, gas shortages are expected to reach 8 mcm daily in north China and 5-6 mcm per day in the south, China Petroleum Daily, an in-house newspaper of CNPC, PetroChina's parent, said on Tuesday.
"Gas for household needs and for heating can be guaranteed in the winter and spring by further reducing supplies to industrial users," Lin Changhai, general manager of PetroChina's gas sales unit in northern China, was quoted as saying.
In southwestern Chongqing, taxis lined up for compressed natural gas (CNG) as the sudden drop in temperatures slowed pipeline flows, lengthening refuelling time. Many were reluctant to shift to gasoline, which costs three times as much.
Gas supplies for taxis in Wuhan in Hubei province were halted from Nov. 16, forcing the local government to dole out subisidies to taxi drivers who switched to expensive gasoline.
Scores of industrial firms in Hangzhou, capital of eastern Zhejiang province, were shut due to gas shortages, while several hundred buses in Zhengzhou, in central Henan province, faced being grounded due to gas supply tightness.
"We had to switch to diesel in two of our plants," said Xu Jianyun, a manager with a tyre maker in Hangzhou. "We burned more than 40 tonnes of diesel on Monday.
"We still see a lot of uncertainties in gas supply for the coming months and will stick to diesel as an energy source."

PetroChina and Sinopec, the No. 2 gas producer, also curbed consumption by their own units including some refineries.
"We were using LPG to fill the natural gas gap, so our production was not affected," said an official at Sinopec's Qilu refinery, where supplies were cut by 200,000 cubic metres a day.
"But our profits will suffer as LPG is about twice as expensive as natural gas," he said. "I think the supply situation will not be eased until the begining of next year."
Gas supplies to PetroChina's Lanzhou refinery were also cut by 200,000 cubic metres to about 900,000 cubic metres a day, forcing the largest refining and chemical complex in west China to reduce its urea production, a refinery official said.
The National Development and Reform Commission, China's economic planning ministry, has said tight gas supplies are gradually easing thanks to coordinated efforts by the government and major gas producers.
Industry officials said improved weather in some regions and the record output fostered a temporary relief, but supply capacity will be further tested ahead.
"The gas producers are pumping at almost full rates and using up inventories, how can they increase supplies in coming months when demand peaks?" said one Beijing-based analyst.
Sinopec's fourth-quarter production is at a record of 23.8 mcm, up 1.8 million cubic metres versus the third quarter, the firm said on Tuesday. It curbed supply to its own refineries by at least 450,000 cubic metres.
"Refineries' operational plans won't be affected by gas cuts, but we have to incur higher fuel cost," said a Sinopec official who requested anonymity as he was not an official spokesman. "We have to ensure residential need at the cost of our own."
PetroChina was also pumping at maximum rates, raising its daily output to nearly 200 million cubic metres from 169 million cubic metres in early November, Xinhua news agency said.
"The low price of gas was one cause of the gas shortages," China's energy chief Zhang Guobao said on Monday.
But China will not raise domestic natural gas prices this year, Cao Changqing, head of the price department of the National Development and Reform Commission, said last week.
China last revamped its gas pricing at the end of 2005, linking the clean fuel with alternative fuels such as coal and crude, but the government has only raised prices twice since.

(Additional reporting by Eadie Chen and Beijing newsroom, Editing by Ramthan Hussain)

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