The market expectation for an imminent cut in natural gas prices is flaring again.
The Chinese government might cut natural gas prices by 20 to 30 percent, or 0.4 to 0.9 yuan per cubic meter, as early as November 1, according to several market research firms. The price adjustment will be for "gate-station prices", the prices of natural gas when it is sold by natural gas producers to town gas distributors.
They include ex-factory natural gas prices plus transportation fees. It will be the second natural gas price cut in 2015 after the National Development and Reform Commission (NDRC), China's top economic planner, lowered gate-station prices of newly-added natural gas supply by 0.44 yuan per cubic meter in April.
The market has been expecting a gas price cut since July, previously putting the estimate at somewhere between 0.4 to 0.6 yuan per cubic meter. The Chinese government's likely move to cut natural gas prices will be an important measure to improve the country's natural gas pricing mechanism.
On the other hand, it is also a necessary move as the natural gas market is sluggish, according to energy experts. China has become the third largest natural gas consumer in the world. Its natural gas consumption increased by 15 to 20 percent annually for 15 years before 2014.
However, the gas consumption hit the brake last year, growing at a much slower pace than before, according to Yang Lei, an official of the National Energy Administration (NEA).
Statistics from the NDRC show that China's natural gas consumption rose 5.6 percent year on year in 2014. The growth rate hit a ten-year low. It continued to slump in the first half of this year, with a year-on-year growth rate of 2.1 percent.
The main reasons behind the weak demand for natural gas were a slowing economy and less competitive prices of natural gas, said Yan Beina, an analyst with UBS.
In comparison with plummeting prices of coal and petroleum, natural gas prices in China have barely changed since the adjustment in the first half of the year, said Yang Lei.
The adjustment of natural gas prices have fallen behind the changes in the market, suppressing gas consumption, according to most of the market research firms and experts interviewed.
The price change will to some extent dampen the enthusiasm of natural gas producers, but will help lift consumption in the downstream, said Liang Jin, an analyst with 315.com.cn, an O2O E-business platform for commodities.
In addition, the NDRC is formulating a new natural gas pricing mechanism, which is likely to be announced along with the price cut.
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