The natural gas price reform plan has been in place for nearly six months, with gradual implementation and visible results. China aims to adjust natural gas prices by the end of the "Twelfth Five-Year Plan" period. Experts estimate that domestic natural gas prices could rise by as much as 80% in the coming years.
On December 12, Dai Jiaquan, deputy director of the Petroleum Market Research Institute at the China National Petroleum Institute of Economics and Technology, spoke at the 7th China-Japan Oil Market Research Results Exchange Meeting. He noted that with continued energy price reforms, the price inversion between imported and domestic natural gas is gradually decreasing. According to estimates, natural gas prices in China are expected to increase by 77% in 2015, which would be about 30% lower than gasoline and diesel prices. This will reduce the cost advantage of natural gas, potentially affecting its market appeal.
Despite strict government control over domestic natural gas prices, consumption has grown rapidly, outpacing both GDP and total primary energy growth. From 2000 to 2012, China’s apparent natural gas consumption surged from 25.4 billion cubic meters to 147.1 billion cubic meters, an average annual increase of 16.1%. This far exceeded the GDP growth rate of 10.1% and total energy consumption growth of 7.9%. During the same period, the share of natural gas in primary energy consumption rose from 2.2% to 5.2%.
As demand increased, domestic production alone could no longer meet needs, prompting China to start importing LNG in 2006. In 2012, natural gas imports reached 42.4 billion cubic meters, a 34.9% year-on-year increase. Of this, 22 billion cubic meters came via pipelines, while 14.68 million tons were imported as LNG. For the first time, pipeline gas imports surpassed LNG, and import dependency reached 28.8%.
Despite rising imports, the natural gas sector faced significant losses due to the price gap between imported and domestic gas. Dr. Wang Haibo from the PetroChina Institute of Economics and Technology explained that the prices of imported pipeline gas and LNG were significantly higher than local prices, compounded by additional costs such as VAT, gasification, and pipeline losses. These factors led to substantial losses, affecting supplier motivation and reliability.
In Jiangsu, for example, the 2012 LNG import price was 4.16 yuan per cubic meter, while the lowest city gate station price was only 2.42 yuan. In 2012, Sinopec (601857.SH) reported a loss of RMB 41.9 billion in its natural gas business—equivalent to 36% of the company’s net profit.
In June 2013, the National Development and Reform Commission issued a notice on natural gas price adjustments, effective July 10, 2013. The reform aimed to distinguish between existing and incremental gas, adjusting the latter to a level comparable with alternatives like fuel oil and LPG. At the same time, existing gas prices were gradually adjusted, with efforts to align them by the end of the “Twelfth Five-Year Plan.â€
Since the July 2013 adjustment, the impact was evident in the performance of domestic oil and gas companies. In the first three quarters of 2013, CNPC's natural gas and pipeline segment achieved operating profits of 23.438 billion yuan, up from 885 million yuan in the same period the previous year. This increase was partly driven by the new pricing policy.
Cheng Ruifeng, an analyst at Oriental Oil and Gas Network, told reporters that factors like rising non-residential gas prices, increased use of natural gas for environmental reasons, and expanded pipeline networks in the southwest have affected profitability across different business segments. However, he predicted that the natural gas business will become a major growth driver in the future.
Over the past decade, China’s rapid natural gas consumption has been fueled by economic growth, environmental pressures, underdeveloped storage and transportation infrastructure, and long-term price advantages. Moving forward, as economic growth slows and price advantages fade, environmental protection will likely become the main driver of natural gas demand.
According to a research report from the PetroChina Institute of Economics and Technology, natural gas demand is expected to continue growing, with its share of primary energy increasing. Under a baseline scenario, natural gas demand is projected to reach 205.9 billion cubic meters in 2015, 306.4 billion cubic meters in 2020, and 466.9 billion cubic meters in 2030—accounting for 6.4%, 8.5%, and 11.9% of total primary energy consumption, respectively.
However, Wang Haibo also emphasized that deepening natural gas price reforms requires addressing issues such as the dual pricing system for existing and incremental gas, the rationality of linking prices with alternative energy sources, and how to effectively transmit market supply and demand signals.
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