China's Natural Gas Price Reform on Track After Hike

Posted by Joseph R. Fonseca
Tuesday, August 12, 2014


China will raise natural gas prices for bulk buyers and non-residential use from Sept. 1, putting price reform back on track to spur domestic exploration of the cleaner fuel and curb excessive use by some industry sectors.

Beijing introduced a two-tier pricing scheme in July 2013 to bring its domestic natural gas prices closer to the cost of imports to spur domestic production and to encourage larger shipments of the cleaner-burning fuel.

Top energy consumer China plans to raise its annual natural gas supply capacity to 420 billion cubic metres (bcm) by the end of the decade, the government said in April, an amount 2.5 times that of the country's gas demand in 2013.

The government will raise the city-gate prices for existing volumes by 0.4 yuan ($0.065) per cubic metre, the National Development & Reform Commission said on Tuesday, an increase larger than the average hike of 0.26 yuan per cubic metre last year.

City-gate prices are levels that local distributors, or city gas firms, pay pipeline operators, mainly Petro China  and Sinopec Corp. This increase, like the one last year, does not apply to residential consumers.

The hike came about two months later than expected, as demand for the fuel eased in a slowing economy. Gas prices for fertilizer users were also not included, the NDRC said, to shield agricultural users from price shocks.

The launch of the new gas pricing scheme last year had a positive impact on the market, with domestic gas development and imports of overseas resources accelerating, the NDRC said.

"China's natural gas supply ability has strengthened dramatically," the NDRC said in the statement.

For residential users, the government said in March all cities consuming gas would launch tiered gas pricing mechanisms by the end of 2015, a move to help reduce excess consumption and raise revenues for towngas firms.

Unlike for non-residential sectors like factories and power plants, public consultation is required before local authorities raise prices for the general public.

China the world's fourth-largest gas user, consumed 169.2 bcm of gas last year, an increase of nearly 13 percent from 2012. Imports - of both pipelined gas and liquefied natural gas (LNG) - accounted for nearly a third of the consumption.

(Reporting by Judy Hua, Chen Aizhu and Adam Rose)

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