China Cuts Natural-Gas Prices
November 18 2015 - 12:50PM
Dow Jones News
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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