Chinese cities raise residential gas prices after policy reform

China Resources Gas

11/07/2023 06:29

By Chen Aizhu
       SINGAPORE, July 11 (Reuters) - Chinese cities have been
raising residential natural gas prices in recent weeks after
Beijing launched a new mechanism linking retail residential gas
prices with distributors' fuel purchasing costs, a reform long
sought by utilities.
        More than 20 cities including Shijiazhuang and Handan in
the north, Nanjing in the east, and Mianyang in the southwest
have raised retail gas tariffs by 0.25 yuan ($0.0347) to 0.40
yuan per cubic meter, according to two industry officials and
local government websites.
    That amounts to increases of about 13%-15%, based on Reuters
calculations, and marks a breakthrough reform to link retail gas
prices with the cost of the fuel.
    China has in recent years taken steps to liberalise natural
gas prices by allowing some cost pass-throughs in the commercial
and industrial sectors, but has kept control of residential
prices in what has been widely seen as an effort to avoid a
consumer backlash.
    The rigid pricing structure has at times squeezed
distributors' margins and caused supply disruptions, especially
in the winter heating season. 
    The price increases follow a policy guideline issued in
early June by the National Development and Reform Commission
(NDRC) economic planner, according to industry players, although
the NDRC did not make an announcement.
    The NDRC did not respond to a request for comment.
    Under the guideline, retail residential gas prices are
allowed to be readjusted once or twice in a year in line with
procurement costs for city-gas distributors, while
non-residential prices may fluctuate quarterly or monthly,
according to two industry officials with direct knowledge of the
policy and research notes from Morgan Stanley and Citibank.  
    Purchase costs for city-gas distributors will be calculated
by averaging the cost of different supply sources including
piped gas, liquefied natural gas and compressed natural gas,
said the sources.
    China has hundreds of gas distributors. The major ones
include local-government-backed firms such as Beijing Gas Group
and Hong Kong listed firms like China Gas Holdings  0384.HK ,
China Resources Gas  1193.HK  and ENN Energy Holdings  2688.HK .
    Authorities must approve the costs, and distributors are
required to publish price updates on their websites, the sources
said.
    If a city or province has multiple distributors, authorities
will work out a weighted-average purchasing cost.
    The rise in a single increase in residential prices will be
capped at 0.50 yuan per cubic metre, and there is no floor for
downward adjustments.
    The link will be suspended when market prices surge to
levels that would adversely impact residents or normal economic
activity.  
($1 = 7.2071 Chinese yuan renminbi)

 (Additional reporting by Emily Chow in Singapore and Beijing
newsroom; Editing by Tony Munroe and Sonali Paul)
 ((aizhu.chen@thomsonreuters.com; Reuters Messaging:
aizhu.chen.reuters.com@reuters.net))