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Growing pains felt in China as price hikes kick in for natural gas
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As commuters waited at a bus terminal last Wednesday, more than 50 buses were lined up outside a natural gas station in Harbin, capital of Heilongjiang Province.
Public transport fell into disarray as more than half of the city’s 23 natural gas stations — serving some 3,500 buses and 4,000 taxis running on gas — closed their doors. It followed a price hike that gas stations were not allowed to pass on to customers.
Gas stations in the city previously bought gas at around 3 yuan (49 US cents) per metric meter and sold it at 3.7 yuan. Now their costs have risen to around 4.2 yuan per metric meter, according to local government documents acquired by Xinhua.
“Retail prices in Harbin remain unchanged. For gas stations, the more they sell, the more they lose. It makes sense for them to stay closed for the moment,” said Jia Dongjiang, a Harbin official in charge of fuel management. Similar scenes have been reported in other places, according to Wang Xiaokun, an analyst at SCI, a Chinese energy information provider.
Despite chaos caused by the price hikes, analysts said it is necessary to keep expanding the use of natural gas, which the National Development and Reform Commission (NDRC) described as “an efficient, clean and low-carbon energy source.”
After a national pilot program promoting clean energy started in 2007, Harbin began expanding natural gas use in public transport, equipping its bus fleet with gas tanks instead of oil ones. Taxis followed suit, as drivers found the alternative to oil more cost-efficient.
According to local cab drivers, they could save 30 cents per kilometer, or over 30 percent of fuel costs, running on natural gas.
No more low cost
The low cost was kept possible due to China’s tight grip on the domestic price of natural gases. This is about to change after the NDRC, China’s top economic planner and price regulator, announced price hikes for non-residential natural gas on June 28.
The NDRC spared price hikes for residential use of natural gas, which would directly affect households, particularly needy people, but high streets are expected to be impacted anyway.
As fuel costs for running buses and cabs rise, it is only a matter of time before commuters to begin sharing the costs. According to the NDRC announcement, prices for existing gas usage will see a price hike of no more than 400 yuan per 1,000 cubic meters. Meanwhile, new usage price is pegged to 85 percent of a basket price of alternative fuels.
Prices of other industrial products, like chemical fertilizers that depend on natural gas, are expected to rise, and that will push up the cost of agricultural products.
Rising consumption
At the local level, regional governments have de-facto power over the retail price of natural gas charged by stations, because without the approval from local authorities, gas stations technically could not pass price hikes on to their customers.
China’s natural gas consumption has rocketed in the last decade, rising to more than 146 billion cubic meters in 2012 from 24.5 billion in 2000.Its reliance on imported natural gas also soared, increasing to 42.5 billion cubic meters in 2012 from 60 million in 2006.
Still, natural gas accounts for around 5 percent of China’s primary energy consumption, considerably lower than the average of about 20 percent worldwide. According to a national five-year development plan for natural gas, China aims to increase imports to 93.5 billion cubic meters and total consumption to nearly 230 billion by 2015, taking up a 7.5 percent share of primary energy consumption.
One key hurdle, identified in the plan, is the long-held price control that curbed profitability of domestic production and forced gas importers, including the country’s largest gas producer, China National Petroleum Corporation (CNPC), to sell at prices below cost.
PetroChina, CNPC’s listed subsidiary, reported a loss of 41.9 billion yuan on its natural gas import business in 2012, largely offsetting the profits from its domestic gas business.
Documents seen by Xinhua showed that the Harbin municipal government is prepared to allow the retail price of gas to rise along with the wholesale cost.
“The artificially low natural gas tariff relative to other energy sources and the burden it places on natural gas suppliers is one impediment to the sustainable growth of the industry,” said Moody’s. The rating agency added that China is intent on resolving the structural problems of the natural gas industry so it can develop on a more sustainable basis.
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