To sharpen the competitiveness of natural gas, the National Development and Reform Commission (NDRC) announced the second cut of non-residential natural gas price in 2015 on Nov. 18 to promote the market-oriented reform on natural gas price. Preliminary measurement shows that the burden on downstream enterprises will be decreased by over 43 billion yuan.
The NDRC explicitly announced that from Nov. 20 (this Friday), the non-residential natural gas price at city gate stations will be cut by 0.7 yuan per cubic meters. Industry players are allowed to raise gas prices by 20 percent based on supply and demand after the cut from Nov. 20, 2016, exactly a year after Friday’s cut.
Pressured economy of natural gas urges for price reform
Zhang Yuqing, deputy director of the National Energy Administration (NEA), pointed out in a recent conference on clean energy development that the growth of China’s natural gas decreased obviously since last year. China’s natural gas maintains a double-digit growth since 2000, but the figure recorded only 8.5 percent last year and might record around 5-6 percent this year. A surplus supply of over 10 billion cubic meters might occur this year and next year. It is expected that by the year-end, the consumption of natural gas might only take up 5.8 percent.
Li Wei, President of the Development Research Center of the State Council, also indicated that at present, the use ratio of natural gas in China is relatively low and there is still a long way to go for natural gas to become a main energy accounting for over 10 percent of the total energy consumption. During the “Thirteenth Five-Year Plan” period, the use ratio of natural gas should be improved and the development of natural gas should guide the direction of energy transformation. The key point in expanding the utilization of natural gas lies in the improvement of its economic competitiveness.
Price reduction helps to popularize the utilization of natural gas. As anticipated by the NDRC, the price reduction will ease the burden on downstream gas consumption industries. Calculation based on the 60 billion cubic meters of non-residential natural gas managed by the government shows that the price cut will save downstream industries, including electricity generation, heating supply, taxi as well as the gas consumption industries engaged in commerce and service, by over 43 billion yuan annually.
An analyst on natural gas with SCI International tells SSN journalist that though main domestic natural gas supply enterprises might be face decreasing profit after the price cut this time, but for the downstream industries, such as natural-gas-fuelled power generation, fertilizers using natural gas as raw materials, building materials, glass and ceramics, they will see decreased production cost. Take the glass industry as an example, it can save 111 yuan per tonne for fuel cost. Besides, the retailing price of CNG and LNG gas stations will decrease, the economy of automobile-used natural gas will improve and the market demand on natural gas might pick up.
SHPGX undertakes important mission
The announcement also requires accelerating the inclusion of non-residential natural gas in the Shanghai Petroleum and Natural Gas Exchange (SHPGX) where natural gas will be priced based on the public trading between suppliers and buyers, striving to make non-residential natural gas trade in an open and transparent way in two to three years. The SHPGX should regularly reveal trading information to the public, enabling natural gas to be traded at a fair market price as soon as possible.
Insiders in the industry believe that the moves aim to make natural gas trade transparent, thus laying a foundation for the marketization of natural gas. This also indicates that the SHPGX assumes an important mission during the marketization of natural gas.
Currently the SHPGX is preparing for the launch of data collection and indexes of natural gas prices. It also formed a team to collect and analyze natural gas prices. It has conducted in-depth survey for the preparation and release of price indexes and will give full play to Xinhua News Agency’s advantage in information collection and release channels, which qualifies itself to disclose price information, especially the information shared among natural gas enterprises, to the public.
Market-oriented reform on natural gas is coming to next stage
The market-oriented reform on natural gas in China started late and at a slow pace.
Since July 10, 2013, the NDRC has set the natural gas price based on its inventories and increments. Its inventories and increments have been unified after price adjustment twice, respectively in 2014 and April 2015. The NDRC has also kept non-residential natural gas prices in a rational range and launched pilots on opening the natural gas pricing for direct users.
The NDRC said yesterday (Nov. 19) that on the next stage, the natural gas price reform will aim to fully relax the price control for non-residential natural gas after learning experiences from the relaxation of price control for unconventional natural gas and direct users; secondly, it will gradually rationalize non-residential natural gas prices at proper time; secondly, it will improve the pricing mechanism of pipeline transportation to set pipeline transportation prices reasonably.
Natural gas price reform is simple one link in its market-oriented reform process. To allow private capital to access the upstream and midstream pipeline market is more worth expecting.
Zhang noted that the government should issue and implement the plan on oil and gas reform as soon as possible, adding that “if China wants to achieve rapid growth in natural gas, it must solve the difficulties and conflicts that hinder its development. We have to deepen the reform of natural gas system and promote the reform of natural gas circulation system and market-oriented reform. We should also fairly open the natural gas storage and transportation market and facilitate diversified imports of natural gas.”
To achieve these objectives during the 13th Five-Year Plan period, China will take various measures, including reasonably lowering prices for natural gas transmission and distribution, adjusting prices in high and low seasons; positively developing consumption market, adjusting and improving natural gas utilization policies, supporting and expanding natural gas’s application in the power generation, transpiration and industry; accelerating the construction of natural gas infrastructure, such as main pipeline, gas transmission network, gas storage facility, LNG receiving terminals; gradually loosening restrictions on natural gas exploitation.
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