A plan to reform natural gas prices is being developed; prices for natural gas used in fertilizer production are set to be made more flexible

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A plan to reform natural gas prices is being developed, with plans to liberalize the prices of natural gas used in fertilizer production. Author/Source: Date: 2016-04-07 Clicks: 30. Reporters have learned from agencies such as Anxunsisi and relevant experts that the authorities are discussing the \"Opinions on Deepening the Market-oriented Reform of Natural Gas Prices\" (hereinafter referred to as the \"Opinions\"). The ultimate goal of this reform is to eliminate restrictions on gas supply and sales prices, with only the prices related to the natural monopoly of gas pipeline transmission and distribution to remain under regulation; all of this is expected to be achieved during the 13th Five-Year Plan period. 　　Under the current path of reform, there will be no longer any distinction between residential and non-residential gas prices for upstream gas supplies. Integration of these two types of prices is planned for 2016, with gradual full liberalization, allowing prices to be determined through negotiation between supply and demand parties or via the market. In addition, the prices of gas used for fertilizers and the prices for buying and selling gas in gas storage facilities are set to be liberalized. 　　It is understood that since the market-based reform of natural gas prices in China began in 2010, previous adjustments to natural gas prices have mainly targeted non-residential users, while residential gas prices have not been adjusted at all. According to Anxunsi’s data, as of now, in regions such as Yunnan, Guizhou, Guangxi, Guangdong, and Fujian in China, where pipeline gas is not available or where imported gas is the primary source of supply, both residential and non-residential users are subject to the same gate price. The price of gas for residents in other areas is generally 0.2–0.5 yuan per cubic meter lower than that at stations serving non-residents, with the maximum difference reaching as much as 1.73 yuan per cubic meter. 　　The guidelines propose that the pricing for gas distribution stations serving residential customers should be rationalized, with the benchmark price for such stations adjusted to the level of the benchmark price for stations serving non-residential customers. The current system of managing the highest gate station prices is being replaced by a system based on benchmark gate station prices. The supply and demand parties can negotiate to determine the residential gate price based on the benchmark gate price, with a 10% increase allowed and no limit on the decrease. No increase will be applied at the time the plan is introduced; specific prices for each station will be determined within the limits set for decreases. No increase will be applied at the time of introduction, but an increase is allowed one year after the plan is put in place. The price adjustment for residential gas stations is scheduled to be implemented by 2016. 　　A senior official from a gas company said that the aforementioned regulations essentially increase the cost for gas companies to purchase gas for residential use, and it is unlikely that they will be implemented in the short term, even if such measures are proposed. Since gas companies in various regions currently charge lower prices to residential customers, and although tiered pricing systems for residential gas use have been introduced in most areas, 80% to 90% of residential users fall within the first pricing tier. If the cost of gas for residents increases, gas companies cannot bear the additional costs on their own, and therefore the retail selling prices need to be adjusted. However, adjustments to the gas sales prices for residents in various regions require hearings to be held by local price authorities, and it remains uncertain whether these adjustments will ultimately be passed on to downstream users. 　　Ye Chunxiao, an analyst at Anxunsi, believes that China’s residential gas consumption remains relatively stable, with each household using a small amount of gas; as a result, residents have a relatively high tolerance for gas prices. Under the current economic conditions, industrial users with growth potential and high gas consumption have relatively weaker tolerance to natural gas prices. For a long time, the gas prices for domestic consumers have been much lower than those for non-residential users, resulting in a severe issue of cross-subsidization. If the gas prices for residents and non-residents are aligned, it will help to gradually address the issue of cross-subsidization, reduce gas prices for non-residential users, and thus facilitate the wider use of natural gas in non-residential applications. 　　At the same time, the Guidelines also recommend deregulating the purchase and sale prices of gas storage facilities, as well as the prices at which gas suppliers supply gas directly to fertilizer manufacturers, allowing market-based pricing to be determined by supply and demand parties. 　　It is understood that the gas price for peak-shaving use in gas storage facilities during winter has always been subject to the **established uniform price. A person close to Sinopec said that due to the high costs associated with the construction and operation of gas storage facilities, these facilities are currently operating at a loss, which reduces companies’ willingness to invest. As a result, the development of natural gas storage and peak-shaving facilities in China has lagged behind. 　　“At present, the natural gas storage facilities built in China are mainly funded by CNPC and Sinopec. In recent years, efforts have been made to encourage diversification of the entities that invest in such storage facilities; however, private enterprises still face risks such as complex approval processes, long investment recovery periods, immature safety and technical capabilities, and an unclear pricing mechanism for natural gas if they wish to enter this sector. ”Ye Chunxiao said.