The 11% increase in natural gas prices in Beijing implemented by the local government last week is an indication that the central government might soon unveil more gas pricing reforms, analysts said Tuesday.
The Development and Reform Commission in Beijing increased residential gas prices by Yuan 0.23 (3.6 cents)/cubic meter to Yuan 2.28/cu m from Friday last week.
Households in the city would have to pay Yuan 4.6 more each month for their gas, Xinhua reported Monday, adding that low-income families would be offered subsidies to cope with the added cost.
The Beijing municipal government has been considering a gas price increase since 2010 -- after the last major price hike by the central government -- but delayed any adjustments due to inflation concerns last year.
The National Development and Reform Commission had raised onshore natural gas wellhead prices across the country by Yuan 0.23/cu m, or roughly 25%, in June 2010.
Beijing's city gas consumption is expected to rise by 14% year on year in 2012 to 8.7 billion cu m, and this could hit 20 Bcm by 2015, Xinhua said. Natural gas is becoming the dominant fuel for public transport in Beijing while gas penetration in the city is now the highest in China with more than 4.7 million households connected.
In December 2011 the NDRC introduced a new pilot pricing mechanism in southern Guangxi and Guangdong provinces, linking the price of gas to that of LPG and fuel oil traded in Shanghai. The previous method took into account pipeline and other tariffs.
Since then, the government has repeatedly said it is committed to extending the reforms to other parts of the country.
In its China Gas Monthly report issued Monday, Beijing-based energy consultants 3E said that "pressures are mounting over the inflexible and even irrational domestic natural gas pricing mechanism," particularly as the volume of more expensive gas imports increases. "As inflation pressures are easing, a new round of gas pricing reforms is expected," the report said.
In November, the provincial government in south central Hunan province also proposed a trial gas pricing mechanism in the residential sector in the three major cities of Changsha, Zhuzhou and Xiangtan.
On Monday, the NDRC released the official gas development plan under the current 12th Five Year Plan, again stressing the need for pricing reforms to reflect the value and scarcity of natural gas relative to other energy resources.
Nomura Research said in a report Tuesday that it sees another wellhead gas price increase as necessary, and as something that can easily be passed on from producers to end-users. "Thus, in our view, the gas distributors should be able to fully pass through any wellhead price hike and keep their absolute dollar margin unchanged," Nomura said.
