City-gate gas price may rise in China’s Zhejiang on higher costs

26 December 2012 07:28  [Source: ICIS news]

SINGAPORE (ICIS)--The Zhejiang provincial government in east China may increase its city-gate price for natural gas supplied via pipelines in view of higher purchasing costs for additional gas, local industry sources in Zhejiang said.

Since the low-cost domestic gas is insufficient to handle rising demand, Zhejiang has to purchase higher-cost overseas gas, including gas piped from central Asia and liquefied natural gas (LNG) from Qatar.

The city-gate price is expected to rise by yuan (CNY) 0.50-0.70 (8-11 US cents) per cubic metre (cbm), according to a market source.

However, officials from the provincial pricing bureau of Zhejiang were not immediately available to confirm on the exact time and extent of the adjustment.

The adjustment in the city-gate gas price at a provincial level is subject to the approval from the central government. Therefore, it is uncertain whether Zhejiang can realise the price rise at present.

Currently, the city-gate price in Zhejiang is CNY2.42/cbm for gas supplied to city-gas operators and CNY2.32-2.41/cbm for gas supplied to gas-based power plants.

In the existing system, Zhejiang Natural Gas Development is the only authorised purchaser of natural gas for the province from upstream gas producers or importers. This company then distributes gas to the province’s power plants and city-gas operators.

To tame customers’ resistance on the price rise, some industry experts suggest that the increase will only apply to additional consumption. For example, if a power plant currently consumes 300m cbm of gas each year, then it can continue to consume such a volume either without any price hike or at just a CNY0.02/cbm hike, while any additional volumes will be subject to a CNY0.70/cbm increment.

Under such an arrangement, power generators will be less affected because they can choose not to increase their purchases. However, city-gas operators will be affected as they have to buy more gas to meet rising demand from their customers, especially residents, while the retail price for residents  are strictly controlled by the government, sources said.

($1 = CNY6.23)

By: Ricki Wang
+65 6780 4359

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