The gas pricing mechanism still needs to be sorted out



At present, the natural gas pricing mechanism is still not perfect, in the current high gas prices, industrial users and urban fuel enterprises are under great pressure. The industry is crying out that it is necessary to realize the upstream and downstream price linkage of natural gas as soon as possible, cancel cross-subsidies, and rationalize the price mechanism.

On April 6, 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 Natural Gas Trading Center showed that from March 28 to April 3, China LNG comprehensive import CIF price index was 117.93, up 38.69% year-on-year.

In view of the recent high natural gas prices, some regions have launched support policies for the upstream and downstream price linkage mechanism.

A few days ago, the Hunan Provincial Development and Reform Commission issued the "Notice on Clarifying the off-season Non-residential gas Sales Price in 2022", deciding that the off-season non-residential gas sales price in 2022 will not implement a new linkage adjustment, and 10 cities such as Changsha and Zhuzhou will continue to implement the 2021 heating season price, of which Loudi has the highest price, reaching 3.968 yuan/cubic meter.

"At present, some regions have indeed issued relevant notices, among which Hunan Province is the first province led by the provincial government to implement the corresponding price this year, and the gas price determined by it is enforceable, if implemented in place, it can alleviate the operating pressure of various gas companies to a certain extent." Boyi consulting general manager Yang Changxin said.

Insiders said that at present, China's upstream and downstream natural gas pricing mechanism is still imperfect, downstream price adjustment lags behind, and natural gas price market-oriented reform is still a long way to go.

Multiple documents to adjust prices

According to the monitoring of the Shanghai Oil and Gas Trading Center, the number of natural gas spot market transactions is relatively small, and Chinese buyers have not participated in the high price spot transactions reached recently. It is reported that in the current natural gas landed price index, the spot part of the pricing time is February this year, and the high spot price during this period, to a certain extent, the market has suppressed the demand for spot. Under the influence of many factors, the comprehensive import to shore price index of LNG has fluctuated greatly recently, and enterprises' purchasing enthusiasm is not high.

Therefore, in addition to Hunan, Shanghai, Zhejiang Zhoushan, Hebei Shijiazhuang, Guangdong Shaoguan, Fujian Nan 'an, Guangxi Sanjiang and other places have also introduced off-season non-resident gas price schemes. In these programs, some areas directly increase prices, and other areas continue to use the last year's heating season prices to ease the pressure on urban fuel enterprises.

Among them, the Shijiazhuang Development and Reform Commission issued a document for non-resident gas prices in the off-season, clearly following the heating season price, and the maximum sales price of pipeline natural gas for non-residents in the main urban area was adjusted to 3.95 yuan/cubic meter.

According to Shanghai regulations, the benchmark price of natural gas sales for gas power plants and Caojing thermal power plants will be raised by 0.4 yuan per cubic meter, and the benchmark price for other non-residential users will be raised by 0.6 yuan per cubic meter. At the same time, the seasonal difference will be abolished, and the actual sales price will be determined by the supplier on the basis of the benchmark price set by the government within a floating range of 5%.

Zhejiang Zhoushan Putuo District Development and Reform Commission said that in order to alleviate the operating pressure caused by the rising price of natural gas enterprises, according to the upstream and downstream linkage mechanism of non-resident natural gas prices, adjust the price of non-resident natural gas, and the maximum sales price of non-resident pipeline natural gas terminal was raised from 5.32 yuan/cubic meter to 6.8 yuan/cubic meter.

"In the case of residential gas prices that are difficult to adjust, the price reduction space generated by the currently vigorously implemented gas transmission and distribution price reform and the direct supply of large users can be used to reduce industrial and commercial gas prices." However, whether the price can be smoothly adjusted, and whether the relevant policies can really land is still unknown. For example, a gas company in Zhoushan sells gas at a price of 5 yuan/cubic meter for industrial gas and 5.3 yuan/cubic meter for commercial gas. Due to the continued high spot price of LNG, the gas company has applied to the government for an increase to 6.8 yuan per cubic meter. Even so, the current applied gas price can not cover the current cost gas price, and whether the applied gas price can be implemented is still unknown, and it is still a little difficult to adjust the price to downstream end users." A person close to the Zhoushan gas market said, "From a business point of view, gas companies in order to ensure the stable supply of gas sources, it is understandable to bear some cost pressure, but also hope that there are relevant subsidy policies to 'yield profits'."

Urban combustion enterprises and industrial users under pressure

"From the summer of 2021, the domestic natural gas supply and demand pattern as a whole shows a high price and tight situation, and the city fuel enterprises basically have no opportunity to reserve low-cost gas sources, but also to assume the responsibility of guaranteeing supply, coupled with the price mechanism is not smooth, the city fuel enterprises are under great pressure." Yang Changxin said.

At present, because the price of non-resident gas has a clear ceiling and the range is limited, it is far lower than the actual increase in the cost of air intake of urban fuel enterprises, and the excess part can only be digested by urban fuel enterprises.

Yang Changxin further pointed out that the price pressure on the city fuel enterprises is large or small, but also depends on the air source structure of the enterprise. "For example, gas enterprises in Zhoushan and other places with imported LNG as the main gas source need to follow the market when purchasing incremental gas, and the operating pressure is greater."

An employee of a large gas group in Hefei said that at present, the company's natural gas cost is inverted, but it still needs to "stop one household gas and stop one party gas" according to the government's requirements. "Our main gas source is pipeline gas, and LNG is just a supplement. But now the price of pipeline gas increment contract gas is also high, the price of supplementary LNG is also high, and the current business environment has high requirements for us, and it is in urgent need of various government policy support."

Shandong, a gas industry person who did not want to be named said that at present, urban fuel enterprises are also applying to government departments to raise prices and subsidies, but the effect is not obvious.

If the pricing mechanism is successfully landed, it means that the end industrial users of natural gas should share the cost pressure of urban fuel enterprises.

"Industrial and commercial users have large gas consumption, and their gas prices should be lower than residential gas prices." However, China has long adopted a low residential gas price model and cross-subsidized industrial and commercial users through high gas prices, resulting in a price level that cannot fully reflect the actual cost borne by users, which has inhibited the price mechanism to a certain extent." The above near Zhoushan gas market said.

"The seasonal linkage mechanism of the terminal sales price of non-residential gas has basically formed, but it is mainly raised in the peak of winter gas use, and it is rarely lowered in the trough of off-season gas use." In our research and visits, we learned that industrial users' recognition of the gas price linkage policy is not high, and the phenomenon of cross-subsidies is more prominent." State Council Development Research Center resources and environmental policy Institute researcher Guo Jiaofeng said.

It is urgent to establish a reasonable cost sharing mechanism

Respondents said that at present, there is still a big gap between China's current natural gas price formation mechanism and the overall idea of "controlling the middle and letting go of both ends" in the oil and gas reform, which is still dominated by government regulation, and the market-oriented pricing mechanism needs to be further improved.

In Guo Jiaofeng's view, to improve the marketization of natural gas prices, we should first eliminate the price distortion caused by cross-subsidies to the greatest extent, rationalize the natural gas pricing mechanism as soon as possible, and establish a reasonable cost sharing mechanism. "We should actively promote the fair and open urban gas distribution network, reduce gas distribution levels, strictly regulate gas distribution prices, explore and promote the marketization of terminal sales prices, and rationalize the price mechanism as soon as possible and eliminate cross-subsidies on the basis of 'permitted costs plus reasonable benefits'."

Industry insiders suggest that for areas that do not have the conditions to cancel gate price control, the gate price formation mechanism should be improved, and the pricing mechanism should be changed from government control to linked to oil prices. For areas that have the conditions to cancel gate price control, the development of natural gas market trading centers should be accelerated, and the pricing mechanism should be changed from being linked to oil prices to "gas and gas competition."

"Reasonable price is an important lever to balance the interests of all parties, and it is the key to the healthy development of the natural gas industry, but at present, China still lacks a benchmark price for the natural gas market." The development of natural gas market trading centers, through the trading center benchmark price to replace the government pricing, is also an important path to realize the market price of natural gas." The above-mentioned employee of a large gas group in Hefei said, "At the same time, it is necessary to strengthen the supervision of natural monopoly business, promote the pilot reform of fair competition in the placement link, promote the integration of urban fuel enterprises, and improve the efficiency of their operations and services."