Another Chinese city gears up for gas-price reform

At the beginning of August, authorities in Wuxi City, Jiangsu Province published details of the price revolution for residential natural gas. According to the announcement, the wholesale price for residential natural gas will increase by 0.35 yuan per cubic metre; prices will continue to increase gradually based on consumption. The retail price of the liquefied petroleum gas in Wuxi will increase from 9.3 yuan per cubic metre to 17 yuan per cubic metre.

The rise in natural gas prices in Wuxi city follows the National Development and Reform Commission’s (NDRC) natural gas price experiments in Guangdong and Guangxi provinces in 2011.

China has been the largest net importer of natural gas since 2007, and domestic demand has been increasing every year. In 2010, China’s natural gas consumption reached 109 billion cubic metres, five times more than a decade ago. In the same year, production of natural gas was 96.8 billion cubic metres which represented a 13.5% increase since 2009. Still, the shortfall in the supply of natural gas was 12.2 billion cubic metres, and so there was pressure to increase natural gas imports.

According to China’s 12th Five-Year Energy Plan, published by the National Energy Administration, the nationwide demand for natural gas is estimated to reach 260 billion cubic metres in 2015. By that time, natural gas consumption will represent 8% of total energy consumption. The price revolution of natural gas will certainly correspond with this increase in its consumption.

Zhou Fengqi, an expert at the National Energy Advisory Committee, believes that market price mechanisms will raise the currently low price of natural gas. Others worry about the potential of price monopoly in the near future because the operation rights in terms of the wholesale price will be under the control of two major petroleum companies, which will enable them to control the retail price easily.

A comment on pointed out the key factors in the natural gas revolution: integration with international oil prices; coordination between the supply and demand prices; and optimise the structure of energy consumption.

Zhang Yingying is assistant editor in chinadialogue’s Beijing office.

This article is published as part of the Green Growth project, collaboration between chinadialogue and The Energy Foundation.

Translated by chinadialogue intern Sun Jiabao and edited by volunteer Hope Loudon.