The price of natural gas will rise by an average of 15 percent for non-residential users from July 10, in a move an official and analyst say will help end overcapacity in industrial sectors and boost natural gas imports.
The National Development and Reform Commission said on Friday that if gas consumption does not exceed last year's level, users will have to pay a maximum of 0.4 yuan (6.5 cents) more per cubic meter, but fertilizer producers will pay a maximum of 0.25 yuan more.
If gas consumption exceeds last year's level, the price for the excess consumption will be equal to 85 percent of that for alternative energy sources such as fuel oil and liquefied petroleum gas.
After the adjustment, the average price for natural gas will rise from 1.69 yuan per cu m to 1.95 yuan per cu m. Gas prices for residential users will not change.
Non-residential gas consumption totaled 112 billion cu m in China last year. It is expected to increase by 10 percent this year.
An official with the commission's pricing department, speaking on condition of anonymity, said, "The price reform sends a clear signal to industrial users — that you have to give more thought to whether or not to launch low value-added projects."
The official added that a higher price will boost natural gas imports as well as domestic production.
Wang Xiaokun, a natural gas analyst with Sublime China Information Co, a Chinese commodities consultancy, said, "The price increase will benefit companies such as China National Petroleum Corporation."
Last week, CNPC signed a deal with Russia's second-biggest independent gas producer, Novatek, to acquire a 20 percent stake in Novatek's Yamal LNG project in Russia's Arctic region. The company will embark on a series of energy projects in the natural gas industry with its Russian partner.
But Wang said the effect on natural gas imports will take time, because natural gas supply involves many aspects, including pipeline construction and prices.
"But there is no doubt that natural gas importers will be more active and willing to sign contracts and expand production," Wang said.
In 2012, about 27 percent of China's natural gas consumption depended on imports.
Natural gas power plants will be hardest-hit by the price increase.
According to Sublime, the cost of power generated by natural gas is 0.05 yuan to 0.11 yuan higher than for thermal coal for each kWh, indicating that the unit cost for natural gas power plants will be 0.4 yuan higher when the government charges this much more for each cu m of natural gas.
"Natural gas prices for these power plants were not at a low level before the price rise, which means they will face more challenges from higher costs after the new mechanism takes effect," Wang said.
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