China supports gas use in industries, accelerates pricing reforms

06 November 2012 09:17  [Source: ICIS news]

SINGAPORE (ICIS)--China’s latest policy on natural gas usage shows that the country’s gas supply has grown significantly to allow the government to loosen controls on gas usage and speed up reforms on gas pricing, industry sources said on Tuesday.

The National Development and Reform Commission (NDRC), China’s top economic planning agency, released its new policy on the use of natural gas on 31 October.

In China, users of natural gas are categorised into four groups – preferred, allowed, restricted and prohibited – to reflect the scarcity of natural gas.

The new policy, which will take effect from 1 December 2012, increases the number of “preferred” users to 12 from four in the previous policy issued in 2007.

The additions to the group of “preferred” users include manufacturers in the construction materials, electromechanical, light textiles, petrochemicals and metallurgy industries; hydrogen production projects fuelled by natural gas; and cargo ships travelling on rivers, lakes and short-distance marine routes especially for liquefied natural gas (LNG), the document showed.

Most of the above were categorised as “allowed” users in the 2007 policy.

Other newcomers to the “preferred” category are coal bed methane (CB) or coal gas-fuelled power plants, central heating utilities and gas-fuelled air conditioners, the document indicated.

The increase in the group of “preferred” users shows that China’s gas supply has risen dramatically in the past few years. China has signed lots of new gas purchase deals since 2007. It has increased gas imports to central Asia through pipelines and also secured several big LNG contract supplies from Australia and Qatar, according to industry sources.

The country is expected to produce a total of 154.6bn cbm/year of natural gas by 2017 and to import 162.4bn cbm/year by 2017, according to estimates by C1 Energy, an ICIS service in China.

The government also supports the construction of gas storage facilities for peak shaving purposes in urban areas.

“Gas storage facilities specifically refer to storage tanks for LNG and compressed natural gas [CNG]. The government aims to encourage enterprises to better allocate their resources to guarantee supply,” said Jiang Xinmin, deputy chief at the Energy Research Institute of the NDRC.

In addition, the country will speed up reforms on pricing mechanism of natural gas, the document indicates.

China will continue to improve the current pricing mechanism for natural gas, extend reform trials, and accelerate in establishing linkages between prices of natural gas and substitute energies, according to the revised policy.

“Gas pricing reform is inevitable in the future, in order to better allocate gas supplies in China,” Jiang said.

The government has conducted a pilot scheme of natural gas price reform in south China’s Guangdong province and Guangxi Zhuang Autonomous Region in late 2011. Under the more market-oriented scheme, gas prices are connected to prices of fuel oil and liquefied petroleum gas (LPG).

The government will also establish a price linkage mechanism that can reflect changes in both upstream and downstream sectors of the gas industry, the document showed.

Regions with distinct seasonal differences in gas consumption are encouraged to adopt differentiated gas prices for different seasons or supply frequencies, so as to rationalise gas usage, the document indicated.

“The government may adjust gas prices according to supply shortages during consumption peaks, to remind consumers of rational consumption,” Jiang said.

The new policy also states some suggestions on developing gas-fuelled projects with higher performance ratios.

Additional reporting by Fanny Zhang

By: Rebecca Qian

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