Wholesale Price for Natural Gas Slashed to Further Boost Slow Growth
China recently announced a almost 25 percent cut in wholesale prices of natural gas starting last Friday, this will be the second reduction this year as the country seeks to boost slow growth in demand for a cleaner burning fuel. Energy giants in China are forced to resell or renegotiate its long term global supplies as cooling economy hit the gas demand in the world’s third largest consumer, meanwhile an inflexible pricing policy have curb consumption as well.
Benchmark city gate prices for non residential users is lowered by .70 yuan per cubic meter as of November 20 and top economic planner the National Development & Reform Commission said that aside from cutting the benchmark prices they will be allowing a 20 percent upward float and setting a no limit for a downward adjustment. Market watchers is expecting another price cut but not as much as shown by the government as they want to send a strong signal that will boost price demand, but the impact is mixed for the players in the market.
Hopefully it will boost demand to the large end users especially those domestic pipeline gas and benefits those with integrated value chains such as downstream assets in power plants and the city distribution networks. But state energy firms have signed up for a more pricey long term supply deals of liquefied natural gas sane as Qatar and recently Australia, which stated that the price cut might hurt their import businesses.
City gate prices as paid by local distributors or city gas firms to pipeline operators. The agency urges participants in the market for non residential gas to trade in the Shanghai spot exchange to achieve a full market transparency in two to three years. The Shanghai exchange will publish regular information for spot trades. Beijing also introduced a new pricing scheme in July in hopes to pull domestic prices of natural gas closer to the cost of imports, aside from pushing domestic output and burning cleaner fuel to cut down emissions and to fight off pollution.
The last adjustment of gas prices was on April 1 with a .44 yuan cut per cubic meter in the so called incremental gas that will effectively merged two tiers of pricing into one. Although the price cut will not reflect the falls in substitution fuels against regulated gas prices were benchmarked, which curb the use by factories and slowed vehicles shift in the fuel from diesel to gasoline.