A Chinese visitor walks past the stand of CNPC at an exhibition in Beijing. China will pass on some of the higher costs of natural gas to consumers, but again excluded residential users in its first price increase in more than a year.
Dow Jones
Beijing
China will pass on some of the higher costs of natural gas to consumers, but again excluded residential users in its first price increase in more than a year.
The move comes as the country aims to eliminate overcapacity in industries that rely heavily on cheap natural gas and as Beijing slowly loosens its grip on energy prices to accelerate the development of unconventional resources such as shale and coal-bed methane gas.
China’s Natural Development and Reform Commission, its top economic-planning agency, said yesterday that it would raise the government-set wholesale price of natural gas by as much as 0.4 yuan (6 US cents) per cubic metre from September 1. China divides natural gas sold to non-residential users into two categories. The first, known as existing reserves, is based on the volume of natural gas consumed in 2012. The second, known as incremental reserves, is the volume of gas consumed above that level.
Last year, the NDRC said existing reserves were 112bn cubic metres, and it estimated incremental reserves of 11bn cubic metres. China’s total natural gas consumption was 170bn cubic metres in 2013, after factoring in imports. Consumption is expected to reach 420bn cubic metres by 2020.
The price increase announced yesterday, which will vary by region, affects only existing reserves, the NDRC said in a statement on its website. The increase is aimed at promoting the development of natural gas resources and accelerating the reform of industries with backward capacity that rely on natural gas as a feedstock, it said.
Tian Miao, an energy analyst at research firm NSBO, said in a note that PetroChina Co, the country’s largest gas supplier, will be the largest beneficiary of the price increase because it controls most of the pipelines and wholesale distribution in China. The increases should eventually trickle down to benefit gas distributors such as Kunlun Energy Co, ENN Energy Holdings and China Gas Holdings, she said.
“Those with higher exposures to direct distribution, commercial and industrial customers – rather than residential users – will see the greatest upside as industrial prices are usually raised faster than residential prices,” she said.
The NDRC said China’s natural gas consumption has been growing at an average rate of 15% a year and that domestic production isn’t enough to meet demand. As a result, natural gas imports – which are more expensive – have risen each year, adding to pressure to accelerate domestic pricing reform, it said. China imported 53bn cubic metres of natural gas in 2013, or about 30% of its total needs, according to the NDRC.
Concerned about the impact of inflation on its population, China has used price controls to blunt the effects of rising natural gas prices. In March, however, the NDRC said it would introduce a three-tiered pricing structure for residential natural gas users by the end of 2015. The tiers will be similar to recent pricing reforms for residential water and electricity prices, which charge more based on higher
consumption.
