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China Raises Factory Price of Natural Gas

Posted on: Monday, 26 December 2005, 09:00 CST

Text of report in English by official Chinese news agency Xinhua (New China News Agency)

Beijing, 26 December: China decided to further reform its monopolized price forming mechanism of natural gas and started to raise the factory price of natural gas on Monday [26 December].

The National Development and Reform Commission (NDRC) said in a notice that the reform aims to establish an market-oriented price mechanism in China to ensure sound and healthy development of the natural gas sector.

According to the notice, factory prices of natural gas to be used for industry and urban utility will be raised by 50-150 yuan per 1,000 cu.m., and that to be used for fertilizer will be raised by 50- 100 yuan.

Currently, China made its factory price of natural gas under a dualistic principle, the government-set price and the government- adjust price.

The NDRC said the new price forming mechanism will only be decided by the government-adjust price, indicating a relaxative control of the government over the natural gas price.

As China's natural gas industry is still concentrated in two giant state-owned enterprises, the PetroChina Company Limited and the China Petroleum and Chemical Corporation (Sinopec), it is necessary to adopt the government-adjust price principle in making the factory price of natural gas, said the NDRC.

But the NDRC said a long-term goal in China's price reform in the natural gas sector is to form a complete market-oriented price mechanism.

According to the NDRC, an important step of the current reform is to classify China's natural gas producers into two grades, and adopt different benchmarks for factory prices.

The NDRC said natural gas produced in Sichuan-Chongqing gas field, Changqing gas field, Qinghai gas field, all gas fields in Xinjiang and some oil fields in Dagang, Liaohe and Zhongyuan will be classified into the first grade of lower price, while the rest classified into the second grade of higher price.

The current benchmark factory price for the second-grade natural gas is 980 yuan per 1,000 cu.m. The NDRC said the benchmark price of the first grade will be raised to the second-grade level in three to five years.

The NDRC said the benchmark prices of natural gas will be changed each year according to the prices of other resources like petroleum, and the producers may float the factory price under the furthest extent of 8 per cent.

The NDRC said the price reform will have limited influence on citizens and relevant enterprises.

In the past 27 years, China has developed from a planned economy to a market economy and the price mechanism also turned from being highly-concentrated to market-oriented under the government's macro control.

Source: BBC Monitoring Asia Pacific

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