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Natural gas prices link to fuel imports in pilot scheme
By Richard Fu |
December 28, 2011, Wednesday
|
Print Edition
Print Edition
CHINA unveiled a pilot plan yesterday to link natural gas prices with the import prices of alternative fuels in two southern provinces, in a long-expected move to encourage supplies and more efficient use of the gas.
The reform comes at a time when major state energy companies are importing more gas at prices higher than they can sell domestically to satisfy demand in a market where consumption of the cleaner-burning fuel is set to triple over the next decade.
China currently largely sets natural gas prices based on domestic production costs. This system no longer works well with increasingly diversified gas supply sources and the commissioning of new pipelines nationwide, the National Development and Reform Commission, which sets energy prices, said.
"The direction of resource products pricing reform is to set up a system that can reflect the scarcity of resources, market supply and demand situation, and the cost of environment treatment," it said.
In the new system, the commission introduces a "gate price" ceiling for each province, derived from a benchmark price in Shanghai, a typical diversified market that receives piped gas from Sichuan, central Asia, the East China Sea and liquefied natural gas from Malaysia.
The Shanghai benchmark is based on a formula which calculates the costs of imported fuel oil and liquefied petroleum gas prices in the city, the commission said.
The gate prices in other provinces were then set based on the benchmark, taking into account factors such as pipeline charges and local economic conditions.
The pilot program was first applied in Guangdong Province and the Guangxi Zhuang Autonomous Region, with a gate price of 2.74 yuan and 2.57 yuan per cubic meter respectively, effective from this Monday, it said.
The gate prices won't add to users' costs generally because they are only a bit higher than what local people pay for imported LNG from Australia and are lower than sources in other gas projects.
Gas prices are relatively higher in Guangdong and Guangxi compared to other provinces because the two areas haven't been connected by onshore pipelines supplying domestic gas and are closer to international markets.
The pricing reform will have a bigger impact in a later stage and when expanded into other provinces, Xiamen University energy professor Lin Boqiang said.
The reform comes at a time when major state energy companies are importing more gas at prices higher than they can sell domestically to satisfy demand in a market where consumption of the cleaner-burning fuel is set to triple over the next decade.
China currently largely sets natural gas prices based on domestic production costs. This system no longer works well with increasingly diversified gas supply sources and the commissioning of new pipelines nationwide, the National Development and Reform Commission, which sets energy prices, said.
"The direction of resource products pricing reform is to set up a system that can reflect the scarcity of resources, market supply and demand situation, and the cost of environment treatment," it said.
In the new system, the commission introduces a "gate price" ceiling for each province, derived from a benchmark price in Shanghai, a typical diversified market that receives piped gas from Sichuan, central Asia, the East China Sea and liquefied natural gas from Malaysia.
The Shanghai benchmark is based on a formula which calculates the costs of imported fuel oil and liquefied petroleum gas prices in the city, the commission said.
The gate prices in other provinces were then set based on the benchmark, taking into account factors such as pipeline charges and local economic conditions.
The pilot program was first applied in Guangdong Province and the Guangxi Zhuang Autonomous Region, with a gate price of 2.74 yuan and 2.57 yuan per cubic meter respectively, effective from this Monday, it said.
The gate prices won't add to users' costs generally because they are only a bit higher than what local people pay for imported LNG from Australia and are lower than sources in other gas projects.
Gas prices are relatively higher in Guangdong and Guangxi compared to other provinces because the two areas haven't been connected by onshore pipelines supplying domestic gas and are closer to international markets.
The pricing reform will have a bigger impact in a later stage and when expanded into other provinces, Xiamen University energy professor Lin Boqiang said.
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