China cuts gas prices for industrial users amid fuel reforms

By AIBING GUO and SARAH CHEN
Bloomberg

China cut natural gas prices for business and industrial users as the world’s second-largest economy seeks to boost use of the fuel in its energy mix and reduce pollution.

The cuts vary by city, with a 26% reduction for Beijing and 24% declines for both Shanghai and Guangdong, the National Development and Reform Commission, the country’s economic planner, said in a statement on Wednesday. New prices go into effect Nov. 20 and will save buyers such as power generators and factories an estimated 43 billion yuan ($6.7 billion) on about 60 billion cubic meters of natural gas, the NDRC said.

China’s natural gas demand growth slowed in the first half of this year after almost double-digit expansion the past decade. The country has been slow to adjust prices for the fuel even as the cost to ship liquefied natural gas (LNG) to Northeast Asia has plunged more than 60% from a record in 2014, according to New York-based Energy Intelligence Group.

“It’s a reduction of an average 28% for the whole country,” according to Tian Miao, a Beijing-based analyst at North Square Blue Oak, a research company in London that focuses on China. “The cut is expected as government wants to boost demand for gas, which is very weak now and to meet a target for natural gas’ growing ratio in the whole energy mix.”

The so-called city-gate prices represent the cost for local distributors and buyers and sellers can negotiate around the regional benchmarks, according to the statement. China may install a price ceiling in a year that prohibits costs from rising more than 20% above the value of the benchmarks.

China will limit coal consumption to about 4.2 billion metric tons by 2020, reducing the fuel’s share of its energy generation to less than 62%. Natural gas, which counts for around 6% now, will rise to more than 10% of total energy consumption by 2020.

Bloomberg News reported the imminent price cut in October.

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