PTR Petrochina Company Ltd

BEIJING—China's government on Wednesday moved to shore up ailing demand for natural gas across its economy with deep pricing cuts aimed at spurring greater use by domestic industry.

The cuts, announced by the National Development and Reform Commission, China's top economic planner, slashed benchmark city-gate prices by 0.7 yuan ($0.11) per cubic meter for industry and commercial users. Analysts said the move, expected for the past several months, effectively equaled a 28% cut in average city-gate prices nationwide.

The cuts are important, not least because they signal Beijing is serious about weaning its reliance on coal as part of cleaning up China's economy. At the same time, the price cuts could slow domestic exploration and production of shale deposits in western China, analysts said.

City-gates prices refer to the prices local distributors pay pipeline operators such as PetroChina Co., and have a significant impact on the prices end-users such as factories pay as well as overall domestic demand. The changes announced Wednesday don't impact residential consumers of gas.

In addition, the NDRC said it was deepening energy-sector reforms by allowing greater negotiation over price between buyers and sellers.

Under the revised mechanism, China will allow industry players to charge up to 20% more than government benchmark prices in the future, based on supply and demand. It set no downward limit for price fluctuations.

The price cuts, which are due to take effect Friday, aim to restore demand growth for natural gas in China after it soured this year. Weak demand, in particular for seaborne liquefied natural gas, raised significant questions across the industry over whether the government could meet ambitious gas consumption growth targets.

Developers of LNG projects from Australia to the U.S. Gulf Coast have been closely viewing weak Chinese demand, which has contributed to falling Asian spot LNG prices.

"The cut in gas prices should help restore demand growth," said Neil Beveridge, analyst at Bernstein Research. "China is the most important gas growth market globally, and the LNG industry will breathe a sigh of relief on this announcement."

Mr. Beveridge said that even with the cuts, base prices remained somewhat more expensive than competing fuels. But he added that flexibility in the new government mechanism for buyers and sellers to negotiate pricing would help bring prices in line with the market.

Write to Brian Spegele at brian.spegele@wsj.com

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(END) Dow Jones Newswires

November 18, 2015 12:35 ET (17:35 GMT)

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