The dilemma of China's natural gas price mechanism

1 International liquefied natural gas (LNG) prices have risen, and the domestic natural gas industry price mechanism has been highlighted again.

The China LNG comprehensive import CIF Price index jointly released by the Global Trade Monitoring and Analysis Center of the General Administration of Customs and the Shanghai Oil and Gas Trading Center shows that the China LNG comprehensive import CIF price index was 257.07 from December 6 to 12, up 223.2% year-on-year.

The problem of difficult digestion of high gas prices in imports has been repeated once again.

At the third quarter results conference, petrochina (601857.SH) said it lost 6.4 billion yuan in imported gas in the third quarter; The cumulative loss in the first three quarters was 3.2 billion yuan.

Li Yalan, chairman of Beijing Gas Group, said at the 2021 China Gas Development Forum that high gas prices are difficult to remove and are having a serious impact on the normal operation of urban fuel enterprises. Urban fuel enterprise price inversion phenomenon is serious, the cost burden brought by the price increase can only be borne by the gas supply enterprises themselves.

An industry insider who did not want to be named told the interface news that the price risk faced by enterprises cannot be digested within the spot system, and if you want to reduce your own risk, you can only achieve it through upward or downward transfer, which is the core of the contradiction between upstream and downstream enterprises in the natural gas market for a long time. In the stable state of the market, the contradiction is not prominent, and once the price fluctuates greatly, the upstream and downstream contradiction will be intensified.

From the point of view of the gas price mechanism, the current gate price of natural gas in China presents the characteristics of "dual track system" of government control and market-oriented pricing.

The 2020 "Central Pricing Catalogue" shows that the prices of domestic onshore gas and imported pipeline valve stations put into operation at the end of 2014 are controlled by the government; The gate prices of offshore gas, shale gas, LNG, direct supply to users, and imported pipeline gas put into operation in 2015 are formed by the market.

In the urban gas terminal sales link, the "dual track system" of non-residential gas and residential gas prices is also obvious. Although the National Development and Reform Commission issued a document in 2018 requiring that the gate prices of residential gas and non-residential gas be rationalized, it is difficult to implement in actual operation.

Industry insiders interviewed by interface news generally said that the reform of the gas price mechanism is a systematic project, and the key to rationalizing is whether the full marketization of the natural gas industry chain can be achieved.

From the perspective of the whole natural gas industry production chain, China's natural gas market reform has entered the deep water zone.

According to the reform idea of "letting go of both ends and controlling the middle", there are hundreds of enterprises in the upstream field, but more than 80% of the resources are still concentrated in the hands of "three barrels of oil"; With the establishment of the National pipeline network Group, the long-distance pipeline is independent from the "three barrels of oil", but there is still a long way to go to give full play to its intensive transportation and fair service. Downstream city fuel enterprises are fully competitive, but lack the right to speak and bargaining power in the whole industry chain.

Under the goal of "double carbon", the development of natural gas industry has entered a critical stage. How to clear obstacles for its full marketization in the reform of the gas price mechanism and the whole industrial chain is more urgent.

Upstream and downstream pressure

The price of imported gas has been losing money for a long time. Two years ago, the relevant leaders of China Petroleum publicly said that due to the upside down of the cost of imported resources and the price of gate stations, from 2011 to 2019, the loss of imported gas has exceeded 230 billion yuan.

Sinopec (600028.SH) is under similar pressure. Sinopec said in the third quarter of this year's earnings conference that in the face of rising LNG spot prices during the heating season, it will seek to control procurement costs, and hopes to raise natural gas prices by no less than 20% in the fourth quarter.

According to the interface news, since April this year, China Petroleum's natural gas gate station price has been floating twice, and the floating range has accumulated 10%.

Guo Jiaofeng, a researcher at the Institute of Resources and Environmental Policy of the Development Research Center of The State Council, told Jiemian News that the high price of imported gas that cannot be adjusted at present is mainly concentrated in two parts: First, imported LNG spot, accounting for about 10% of the total consumption of natural gas; The second is some high-priced imported pipeline gas signed by CNPC a decade ago, accounting for about 5% of total natural gas consumption.