BEIJING: China will end two-tier gas pricing, cutting wholesale natural gas prices for non-residential to track an oil market slump, and introduce more market-oriented elements in future pricing of the cleaner burning fuel.
Beijing introduced a new pricing scheme in July 2013 to bring its domestic natural gas prices closer to the cost of imports, to encourage higher domestic output, greater imports and burn cleaner fuel to cut emissions and fight pollution.
China's state planner on Saturday merged two-tier pricing of natural gas into one by cutting prices for the so-called "incremental" gas and raising slightly the "existing" volume.
City-gate prices for the "incremental", non-residential users will be cut by 0.440 Yuan ($0.07) per cubic meters, starting from April 1, the National Development and Reform Commission said on its website. Prices of "existing" gas will be raised by 0.04 Yuan per cubic metre.
City-gate residential natural gas prices will remain unchanged, the planner said. City-gate prices are levels that local distributors, or city gas firms, pay pipeline operators, mainly PetroChina and Sinopec Corp.
The NDRC decision came a few months earlier than expectations, experts said, a move to help ease fuel costs for some users such as the transportation sector and factories.
"The government sees a good window to push through the reform in a low oil environment," said Diao Zhouwei, gas analyst with IHS consultancy, adding the price moves are also in line with their forecast.
In the Saturday announcement, the NDRC also encouraged bulk direct users to negotiate prices with suppliers in a pilot scheme, rather than following government-set rates. Fertilizer makers are the exception, said the planner, as the market remained lacklustre.
The NDRC introduced two-tier pricing - distinguishing existing volumes from incremental or new volumes - to discourage wasteful use of the fuel.
IHS's Diao said the government largely achieved its goal set in 2013 of merging two-tier pricing into one, having raised the wholesale gas prices by roughly 30-40 percent during the period.
Top energy consumer China plans to raise its annual natural gas supply capacity to 420 billion cubic metres (bcm) by the end of the decade, an amount more than doubled that of the country's gas demand in 2014.
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