Changes for gas pricing regime

By Wan Zhihong (China Daily)
Updated: 2010-10-20 13:18
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Administrators begin moves to improve regulation of commodity's cost

Beijing - Qi Yugang, a Beijing resident, lined up for more than an hour last week to buy 150 cubic meters of natural gas.

"It is said that the government will raise the price of gas soon, so I need to buy more now to save money," said Qi.

Changes for gas pricing regime

A taxi driver waits to fill his vehicle's fuel tank in Haikou, capital of Hainan province, on Sept 26, 2010, after the provincial government raised the prices of natural gas. Many regions in China have proposed raising the prices of natural gas. [Photo / China Daily] 

A notice from the Beijing Municipal Commission of Development and Reform on Oct 8 said the body will soon hold a hearing about the urban use of natural gas and price adjustment to "improve the regulation of gas sales prices".

Prior to that announcement, Beijing raised retail gas prices for non-household users by 0.33 yuan (5 cents) a cubic meter, effective on Sept 28.

At present natural gas for household use sells at 2.05 yuan per cubic meter (cu m) in Beijing, while gas for industrial use sells at 2.84 yuan per cu m.

Many other cities in China have recently adjusted their gas prices, for both household and industrial use.

Shijiazhuang, capital of North China's Hebei province, raised household gas price from 2.2 yuan per cu m to 2.4 yuan, effective from Oct 10.

In comparison with western countries, China's natural gas price is still relatively low, and there is further room for adjustment, said analysts.

The low price has resulted in rapid growth in the number of consumers, including those with high consumption requirements, and that is bad news for the long-term development of China's energy industry, said Wang Zhen, director of the Business and Management School at China University of Petroleum.

Reform of the natural gas pricing mechanism has been on the Central Government's agenda for a long time. China's top economic planning body, the National Development and Reform Commission (NDRC), has said that it will implement pricing reform for some natural resources.

China's top power regulator, the National Energy Administration (NEA), has also said that reform of the gas pricing system would be its main task.

Natural gas prices in China are still controlled by the government. There are diversified pricing rules which vary by region, industry and even users.

On average, the domestic price is about half the international price.

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China has increased imports of natural gas from several countries, including Russia and Australia, in recent years. In line with more imports from overseas markets, domestic gas prices should be more closely linked with international prices.

China National Petroleum Corp (CNPC), has incurred "huge losses" for gas imports from central Asia, said an earlier NDRC statement.

"China has seen rapid growth in natural gas consumption in recent years, and it is inevitable that we will need to implement further reforms to the pricing system to secure the healthy development of the industry," said Zhou Dadi, a researcher with the NDRC's Energy Research Institute.

Although many analysts agreed that China should raise natural gas prices in the long term, they differed on the timing.

Some said that now is not the right time for the government to hike prices, when faced with tighter supply during the coming winter and pressure from the consumer price index.

China increased wholesale prices for natural gas by around 25 percent in June to curb demand and allow better allocation of resources - a move which saw natural gas benchmark prices rise by 230 yuan to 1,155 yuan a thousand cu m.