China is mulling over new policies that will match its domestic gas prices with the international levels, according to sources with the National Development and Reform Commission (NDRC).

 

"After studying the natural gas pricing system, the government considers that the price of natural gas should be raised step by step to reach the international level," said Wang Jing, deputy chief of oil and natural gas department of NDRC.

 

But Wang did not reveal a timetable for the plan.

 

NDRC initiated the reform of the natural gas price system last year by raising the factory gate price of natural gas.

 

NDRC said factory price of natural gas should be regulated according to the price movement of alternative energy such as crude oil with price adjusted by no more than 8 percent than that of the previous year.

 

Currently the natural gas price is mainly set by the government, not market, industry analysts agree.

 

China's major oil and gas suppliers, PetroChina, Sinopec and China National Offshore Oil Corp, recently submit a report on raising natural gas prices, claiming that they are under great pressure from international counterparts which have been raising export prices, too low sales prices for end users, fast domestic demand rise and high exploration, production and transportation costs.

 

Statistics show the ratio of oil price to natural gas price is 1 to 0.24 in China, compared with 1 to 0.6 in the international market.

 

The sales prices barely cover the cost of exploration, production and transportation for domestic gas producers, analysts say.

 

Factory gate price of light natural gas (LNG) is 0.8 yuan (US$0.1) per cubic meter in 2006, according to sources with Petrol China.

 

The price of natural gas for end users in China's major cities stand between 1 yuan to 2 yuan. But analysts say the price should reach 2.8 yuan per cubic meter taken into consideration CIF price and other costs.

 

"Gone are the days when natural gas were used at too low prices, but the government will give special consideration to the low income residents", said Wang.

 

It is crucial to find balance between buyers and suppliers in terms of the pricing of natural gas in order to achieve successful natural gas market in the country, said Wang Zhou, sales director of natural gas marketing at Natural Gas and Pipeline Company under Petro China.

 

CIF price of LNG is expected to reach 2.5 yuan per cubic meter according to the LNG export price proposed by Russia in the China-Russia negotiation in terms of natural gas import, according to sources with China Securities Journal.

 

Analysts say it may be one of major reasons to push up the gas price this time.

 

Currently China need to import up to 50 percent of natural gas to suit the fast expanding domestic demand.

 

Li Liang, expert with China international engineering consulting corporation, said too high import price of natural gas will curb the domestic demand and has a negative impact on the construction and development of natural gas projects.

 

There are also complaints that the gas suppliers raise the gas prices in order to rake in huge profits after the domestic gas market is well developed.

 

Wang, the NDRC official, said the country's natural gas market is expected to grow by 15 percent annually with a consumption volume of up to 300 billion cubic meters in 2030. That reached 47.9 billion cubic meters in 2005 with an annual growth rate of nearly 10 percent.

 

(Xinhua News Agency November 11, 2006)