17 July 2013 06:20 [Source: ICIS news]
By Jane Han
SINGAPORE (ICIS)--Producers of liquefied natural gas (LNG) in China are facing thinning margins following the implementation of a nationwide gas pricing reform in the country on 10 July, raising concerns that smaller players may not survive for long, industry players said on Wednesday.
The reform calls for the increase in prices of piped gas supplied to non-residential users to an average of yuan (CNY) 1.95/cubic metres (cbm) from CNY1.69/cbm previously, for volumes that are within last year’s actual consumption. For gas consumption in excess of 2012 levels, prices would be higher by CNY0.58-0.88/cbm.
PetroChina, the biggest gas supplier in the country, has decided to raise prices on supply to LNG plants to the ceilings set by the National Development & Reform Commission (NDRC) that vary from province to province, industry sources said.
The company supplies gas feedstock to more than 70% of LNG plants in the country.
China currently has about 70 LNG plants in operation, with a total capacity of 29.26 million cubic metres (mcm)/day, according C1 Energy, an ICIS service in China. Plants with a daily liquefaction capacity of below 1mcm are considered small in China, and they account for about two-thirds of the industry.
From Changqing Oilfield, PetroChina’s gas price to LNG plants located in Shaanxi and Inner Mongolia will increase by CNY0.99/cbm or by CNY1,400/tonne, a company source said.
LNG producers are constrained from passing on to their customers the full extent of the higher feedstock cost, as demand for the greener fuel is still fragile for news users, like the automotive market.
“Demand growth in traditional residential and industrial users is limited. Producers can only count on LNG-fuelled vehicles, which are expected to continue relatively higher [rate of growth],” said one producer.
The LNG-vehicle market is still at its nascent stage that a sharp and fast increase in LNG prices could dampen demand, the producer said.
Construction of new LNG-refueling stations has been suspended given concerns that demand will deteriorate if prices continue to go up, an industry source said.
China currently has 1,200-1,300 LNG refueling stations in operation, with some running on very thin profits because of surging LNG prices since the second quarter of the year, another industry source said.
Tight domestic supply amid robust supply caused a 17% spike in LNG prices from late April to CNY4,125/tonne in end-June, according to C1 data.
Downstream LNG demand, however, turned sluggish following the implementation of the gas pricing reform early this month. LNG producers may have to bring down their prices, a north China-based LNG supplier said.
Some small LNG producers may not be able to cope with the cost pressures and may have to exit the industry, leaving financially stronger players in the industry, the supplier said.
Most LNG producers have yet to receive official notice on gas price hikes, with some still trying to negotiate lower prices with local governments.
($1 = CNY6.14)
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