State Media: China Eyes Gas Distribution Price Cut to Boost Consumption

Reuters

BEIJING, Aug 1 (Reuters) - China, the world's third-largest natural gas consumer, is planning to lower distribution prices for gas, part of anticipated sector reforms to boost use of the cleaner-burning fuel, state media reported.

China has since 2015 been formulating reform plans aimed at lifting sagging demand growth for natural gas, as industrial users were paying among the world's highest prices, threatening Beijing's targets of curbing pollution and emissions by using more of the fuel.

He Yongjian, deputy head of the planning division of the National Energy Administration, told state media at a weekend seminar that policymakers were looking at cutting the regulated distribution costs for the fuel.

Such a development could weigh on the share performances of city gas firms such as ENN Energy Holdings Ltd and Shenzhen Gas, industry experts said.

"We are short of natural gas but affordability is also a problem. We will take measures to reform the price mechanism," said He, cited by the China National Radio on Monday.

Well-head prices and those charged at end users such as petrochemical plants and ceramics makers would be set by the market, while government-supervised distribution prices would be reduced.

"Prices for distribution and transportation may decline by steps. The distribution costs at branch pipelines are relatively high, and it has pushed up the costs at end users," He was cited as saying.

The cuts on transportation fees may also apply to trunk lines controlled by state giants, predominantly PetroChina , industry experts have said.

Under the current mechanism, Beijing sets the ceiling for wholesale gas prices via a link to alternative fuels and also encourages bulk consumers to negotiate prices directly with suppliers such as PetroChina and Sinopec Corp.

But price adjustments, last made in November 2015, often lagged changes in benchmark fuels, making gas relatively more costly versus competing fuels.

Demand growth has fallen to low single digits in the past two years from the heady years between 2004 and 2013 when demand jumped five-fold.

The provincial authorities of Guangdong and Zhejiang have earlier this year rolled out pilot schemes to cut distribution costs, state-owned Economic Information Daily reported in June, paving the way for broader revamps.

China aims to increase gas consumption to 360 billion cubic meters by 2020, nearly double the 2015 level.

(Reporting By Kathy Chen, editing by David Evans)

Copyright 2016 Thomson Reuters. Click for Restrictions.

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