Country to test means of setting gas prices

Updated: 2011-12-28 08:15

By Zhou Yan (China Daily)

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BEIJING - China announced on Tuesday a test reform of the system it uses to set the price of the natural gas consumed in southern Guangdong province and the Guangxi Zhuang autonomous region.

It plans to base the city-gate price of natural gas - the price a pipeline company charges a gas company for the resource - on the prices of imported fuel oil and liquefied petroleum gas.

Under the system, users can negotiate a price for natural gas with suppliers. That will be allowed to rise no higher than a ceiling price set by the government, which will be adjusted once a year at first. After that, the adjustments will come biannually and then quarterly, said the National Development and Reform Commission, China's top economic planner. The prices will vary from province to province.

The test, meant to reduce the government's influence over gas prices and increase the market's influence, went into effect on Monday.

To set the city-gate price for natural gas, the government has decided to look at the imported prices of fuel oil and liquefied petroleum gas in Shanghai, making them the initial benchmarks.

The maximum city-gate prices will be 2,740 yuan ($430) for 1,000 cubic meters in Guangdong and 2,570 yuan in the Guangxi Zhuang autonomous region.

The new system is meant to be more subject to market influences than were previous ones, in which city-gate prices were set in accordance with domestic production costs, said Lu Ying, an analyst from the oil market service provider

She said it will be easier to reform the part of the gas business that has to do with suppliers and end-users than the part made up of large oil companies, which often have monopolies over gas fields and arterial pipelines.

Guangdong and Guangxi now receive no domestic gas through pipelines, the commission said.

Even so, places in southern China, Guangdong province in particular, are among the biggest users of natural gas in China. Many of them already have liquefied natural gas terminals that receive the fuel from foreign sources, giving them a strong connection to the international market, said Li Yanmei, an analyst at JYD Online Co Ltd, a bulk commodity consultant based in Beijing.

China imported 28.1 billion cubic meters of natural gas from January to November. Its demand for the fuel has only increased in recent years, a time when the country has worked increasingly hard to reduce emissions.

China is expected to import more than 50 percent of its natural gas in the future.

China Daily