China may see more pricing reforms after Beijing hikes gas prices by 11%
Singapore (Platts)--4Dec2012/418 am EST/918 GMT
The 11% increase in natural gas prices in Beijing implemented by the
local government last week is an indication that the central government might
soon unveil more gas pricing reforms, analysts said Tuesday.
The Development and Reform Commission in Beijing increased residential
gas prices by Yuan 0.23 (3.6 cents)/cubic meter to Yuan 2.28/cu m from Friday
Households in the city would have to pay Yuan 4.6 more each month for
their gas, Xinhua reported Monday, adding that low-income families would be
offered subsidies to cope with the added cost.
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The Beijing municipal government has been considering a gas price
increase since 2010 -- after the last major price hike by the central
government -- but delayed any adjustments due to inflation concerns last
The National Development and Reform Commission had raised onshore
natural gas wellhead prices across the country by Yuan 0.23/cu m, or roughly
25%, in June 2010.
Beijing's city gas consumption is expected to rise by 14% year on year
in 2012 to 8.7 billion cu m, and this could hit 20 Bcm by 2015, Xinhua said.
Natural gas is becoming the dominant fuel for public transport in Beijing
while gas penetration in the city is now the highest in China with more than
4.7 million households connected.
In December 2011 the NDRC introduced a new pilot pricing mechanism in
southern Guangxi and Guangdong provinces, linking the price of gas to that of
LPG and fuel oil traded in Shanghai. The previous method took into account
pipeline and other tariffs.
Since then, the government has repeatedly said it is committed to
extending the reforms to other parts of the country.
In its China Gas Monthly report issued Monday, Beijing-based energy
consultants 3E said that "pressures are mounting over the inflexible and even
irrational domestic natural gas pricing mechanism," particularly as the
volume of more expensive gas imports increases. "As inflation pressures are
easing, a new round of gas pricing reforms is expected," the report said.
In November, the provincial government in south central Hunan province
also proposed a trial gas pricing mechanism in the residential sector in the
three major cities of Changsha, Zhuzhou and Xiangtan.
On Monday, the NDRC released the official gas development plan under the
current 12th Five Year Plan, again stressing the need for pricing reforms to
reflect the value and scarcity of natural gas relative to other energy
Nomura Research said in a report Tuesday that it sees another wellhead
gas price increase as necessary, and as something that can easily be passed
on from producers to end-users. "Thus, in our view, the gas distributors
should be able to fully pass through any wellhead price hike and keep their
absolute dollar margin unchanged," Nomura said.
--Song Yen Ling, firstname.lastname@example.org
--Edited by E Shailaja Nair, email@example.com