UPDATE 1-China to raise prices for gas-fired power generation

Tue Oct 15, 2013 1:01am EDT

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BEIJING, Oct 15 (Reuters) - China will raise the on-grid prices paid to power generators that use natural gas to encourage the use of cleaner forms of energy and address the impact of possible supply shortages, the country's top planning agency said on Tuesday.

In a notice posted on its website (www.ndrc.gov.cn), the National Development and Reform Commission (NDRC) said recent natural gas price hikes had raised generation costs and power prices needed to be adjusted accordingly.

Specific power price changes will be determined "soon" on a provincial level, it said.

The announcement, dated Sept. 30 but published on Tuesday, also confirmed that on-grid coal-fired power prices have been cut in order to reflect falling coal prices.

On-grid prices paid for coal-fired generators have been cut on a region-by-region basis, ranging from around 0.009 yuan per kilowatt hour in Beijing to 0.025 yuan in Shanghai.

China, desperate to address long-standing air pollution problems, has vowed to use pricing mechanisms to encourage cleaner power generation, and will also pay higher prices to utilities that have installed emissions control technologies.

But its ambitious plans to encourage natural gas-fired power are being held back by shortages which could drive generation costs even higher and reduce the incentive for utilities to make the switch from coal.

The NDRC said in a separate notice posted at the weekend that China is facing a gas supply crunch this winter and that utilities will be encouraged to make cuts in natural gas-fired power generation during the peak gas demand season.

"With the unusually high growth in gas demand, the gap between supply and demand could be even wider this winter and next spring. If temperatures are persistently low, the gas supply situation will be even more severe," it said.

NDRC asked China's main gas fields, including Changqing and Tarim in the northwest and Puguang in the southwest, to run at maximum rates during the peak demand season and urged oil majors to accelerate construction of new gas fields.

It also called for more imports from central Asia via pipelines as well as the faster construction of liquefied natural gas (LNG) terminals in Zhuhai on the southeast coast and Tianjin and Tangshan in the north to ensure they will come onstream before winter arrives.

Zhou Jiping, chairman of the country's largest gas producer and main gas importer PetroChina , said in May that the company planned to supply 107 bcm of natural gas this year, while demand would reach 115 bcm.

He said it would take at least four to five years to build up new supply capacity and it would still be insufficient to keep up with surging demand.

($1 = 6.1079 Chinese yuan) (Reporting by David Stanway and Judy Hua; Editing by Kim Coghill and Anupama Dwivedi)

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