China’s Gas Pricing Policies at Crossroads

18 July 2018: 

China’s domestic gas pricing policies are at crossroads. The difficulty lies in finding the balance between the right levels of prices that will allow gas demand to grow to more than double the current proportion of gas in China’s primary energy mix of 15% by 2030.

PetroChina, Sinopec and CNOOC often report losses for their LNG imports when oil prices soar, raising their oil-linked LNG import costs above state-controlled domestic gas prices which are adjusted infrequently. The government sets the city-gate benchmark prices for pipeline gas, but how prices are eventually picked remained opaque and the pricing process often included consultation with state-owned gas producers and importers.

The prices published by the National Development and Reform Commission (NDRC) for different groups of consumers are also different, with residential users paying the least while industrial users the most. The NDRC estimates that non-residential users paid Rmb16 billion ($2.5 billion) in cross subsidies to residential users in 2017. There is also no difference in the benchmark prices during peak and off-peak gas demand seasons. However, the prices of LNG and unconventional gas production including shale gas, coal bed methane and coal gasification are market-driven.

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