The dilemma of China's natural gas price mechanism

The consequences of bad gas prices

In the view of Liu Yijun, a professor at the China University of Petroleum, the gas price is not smooth, not only affects the enthusiasm of domestic natural gas production, but also makes up the international market.

At present, domestic gas prices are much lower than imported gas. Interface news learned from a large domestic natural gas production enterprise that the average price of natural gas is about 1.2 yuan/cubic meter; The average annual cost of domestic natural gas is less than 1.5 yuan/cubic meter.

Domestic LNG prices are also much lower than imported LNG. In particular, recent domestic LNG prices have fallen due to downstream demand, and the price gap with imported LNG has increased.

Data from the Shanghai Petroleum and Natural Gas Trading Center show that the national LNG ex-factory price index on December 15 was 4,933 yuan/ton, about 3.5 yuan/cubic meter, which was 56.8% lower than the CIF price of 8.1 yuan/cubic meter of imported LNG spot in the same period.

The relevant staff of Guangdong Songfa Ceramic shares told the interface news that its ceramic kilns all use natural gas, and the gas source is mainly from Chaozhou local, and the products are for the international market. At the beginning of the year, the plant's LNG purchase price was 3000-4000 yuan/ton, and the current purchase price is about 6000 yuan/ton, which is far lower than the increase in the spot price of imported LNG this year.

With the increasing dependence of China's natural gas on foreign countries, if domestic and international natural gas prices can not be linked, resulting in domestic prices upside down, it will seriously hurt the entire natural gas industry chain.

At present, China's dependence on foreign natural gas is about 43%, and it is expected to further increase in the future. The China Natural Gas Development Report 2021 estimates that domestic natural gas consumption will reach 430 billion to 450 billion cubic meters in 2025 and 550 billion to 600 billion cubic meters in 2030.

"If both domestic and imported gas can be marketized, it will not only stimulate the enthusiasm of domestic gas production and reduce natural gas costs, but also reduce natural gas imports and suppress natural gas prices in the international market." The senior energy expert said.

In addition, the poor price of natural gas will cause the price signal to fail to correctly reflect the domestic supply and demand relationship of natural gas.

Liu Yijun believes that from the perspective of the development of the natural gas industry chain, the price of residential gas should be raised, but the government considers the reform from the perspective of social stability and people's livelihood.

Liu Yijun told the interface news that if the linkage mechanism between residents and non-residents can not be effectively implemented, and the pricing mechanism of the city fuel link can not be straightening out, it will further aggravate the contradiction of cross-subsidies, making the gas price mechanism more distorted.

Government departments are clearly more optimistic about the progress of natural gas marketization.

According to the "China Natural Gas Development Report 2021" released in August this year, as of last year, 80% of the consumption gas price was formed by supply and demand parties through negotiation and market leadership. The proportion of resources with fully market-based pricing will increase from less than 10% in 2015 to 45% in 2020.

The report was jointly released by the Oil and Gas Department of the National Energy Administration, the Institute of Resources and Environmental Policy of the Development Research Center of The State Council and the Oil and Gas Resource Strategy Research Center of the Ministry of Natural Resources.

"From the point of view of consumption, only 20 percent of gas prices are set by the government." Guo Jiaofeng believes that, and this part of the natural gas in the city gas link has been regulated by the local government, so the upstream link can be fully released.

The "Central Pricing Catalog" issued in 2020 removed the items in which the price of natural gas gate station is priced by the price authority of The State Council, and proposed the gate station price of natural gas in provinces with competitive conditions to be formed by the market. The industry believes that this means that the price of natural gas gate station will be completely cancelled.

Full marketization is urgently needed

Experts interviewed by interface news generally said that the crux of the price difficulty is that the natural gas industry has not been fully market-oriented, but is in the transition stage from government control to marketization.

Guo Jiaofeng pointed out that at present, the full marketization of the natural gas industry has the foundation and conditions, and the listing of LNG futures will become a landmark event in the full marketization.

According to the general reform idea of "controlling the middle and opening up the two ends", the marketization of natural gas needs to meet three conditions, that is, fully liberalizing the price of natural gas, diversifying the main body of natural gas supply, and establishing a benchmark price system with national guidance.