SHANGHAI (Interfax-China) -- China raised domestic factory-gate prices for natural gas destined for industrial (except for producing fertilizers) and transportation use by RMB 0.4 ($0.054) per cubic metre and allowed for corresponding adjustments to be made to retail prices on Saturday, industry insiders told Interfax today.
The latest price hike is much more significant than the country's previous hike, which occurred in late 2005 and brought prices for natural gas for industrial and civil use up by RMB 0.05 to RMB 0.15 ($0.007 to $0.020) per cubic metre, and gas destined for fertilizer production up by RMB 0.05 to RMB 0.1 ($0.007 to $0.013) per cubic metre.
The National Development and Reform Commission (NDRC) has not yet released an official or detailed public announcement on the price rise on its Web site.
The factory-gate price hike will have a varying effect on retail prices across the country as local price monitoring bureaus are allowed to adjust retail prices to some extent in order to make such prices better reflect local conditions, an official with Jiangsu's provincial-level price monitoring bureau explained. In Jiangsu, the retail price for natural gas intended for industrial use was raised by RMB 0.45 ($0.061) per cubic metre to RMB 2.1 ($0.283) to RMB 2.5 ($0.337) across the province, representing an increase of over 20%.
In comparison, retail prices for natural gas destined for industrial use in the southwestern municipality of Chongqing were raised by RMB 0.424 ($0.057) to RMB 1.667 ($0.225) per cubic metre, and prices in the neighbouring city of Chengdu in Sichuan Province rose by RMB 0.43 (40.058) per cubic metre to reach RMB 1.66 ($0.224). At the same time, natural gas-fuelled automobiles in central Hubei Province will need to pay RMB 3.35 ($0.452) per cubic metre, according to a report by the state-run China Securities Journal.
The new prices will not be applied in Guangdong Province however, as it sources almost all of its gas from domestic gas liquefaction plants or through the Guangdong Dapeng liquefied natural gas (LNG) terminal. The Dapeng terminal, the country's first and only operational LNG terminal, had received around 3 million tonnes of LNG by October after commencing operations in late 2006.
"The price hike does not apply to LNG, so it will not affect Guangdong Province at all," Helen Liang, a senior gas analyst with Guangdong Oil & Gas Association, said
The official with Jiangsu's price monitoring bureau believes that the new prices will not have a big impact on city-based gas distributors as the prices they will need to pay for gas, often referred to as factory-gate prices or ex-factory prices, have been brought up together.
"Only upstream producers will benefit from the price rise," the official said.
The NDRC had announced its intention to raise natural gas prices late last month, when it raised national retail prices for gasoline, diesel and kerosene. In a notice, the commission said that ex-factory prices for natural gas destined for industrial use (except for producing fertilizer) or as an automotive fuel would also be raised in the near future in order to bring gas prices in line with other alternative energy sources and curb excessive consumption.
China is facing significant gas shortages due to limited domestic production and soaring demand that has been supported to some extent by artificially low domestic gas prices. The gas shortfall is particularly severe in regards to gas for civilian use, as gas retailers are more willing to sell larger volumes of gas to the industrial sector.
At present, natural gas is sold in the country at an average retail price of $5 to $6 per million British thermal units (MBtu), while prices on the international market stand at $8 to $10 MBtu.
A recent research report compiled by China International Capital Corp. (CICC), a leading domestic investment bank, said that the country's major gas producers, including the three state-owned energy giants as well as local companies with large stakes in the gas production sector, would probably see their revenues jump next year because of the gas price hike.
PetroChina [NYSE:PTR], which occupies around 73.8% of all gas sales in the Chinese market, will be able to maintain double-digit growth in gas output over the next 10 years, and its pipeline operations are also likely benefit from rising demand for the cleaner fuel, according to the report.
For Sinopec [NYSE:SHI], the country's second largest oil and gas producer, the Taiwanese brokerage firm Capital Group has forecast that an 8% increase in gas prices will bring an additional RMB 600 million ($80.97 million) in net profit for the company next year. According to a report from the group, revenue from gas production as a proportion of the company's entire exploration and production sector will rise to 10% in 2010 from the 3.6% it recorded in 2006.
Construction officially commenced on Sinopec's major gas pipeline between its Puguang gasfield in Sichuan Province and the financial hub of Shanghai in September. With a total investment of RMB 62.7 billion ($8.28 billion), the 1,700-metre pipeline is to be completed by the end of 2010 and have an initial annual transmission capacity of 12 billion cubic metres.
(c) Interfax-China 2007. For more intelligence on Chinese metals and mining, contact David Harman in Hong Kong at david.harman@interfax-news.com or (852) 2537-2262.
