CORRECTED-UPDATE 1-China to introduce tiered gas prices for household users

Fri Mar 21, 2014 7:09am EDT

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(Corrects in the sixth paragraph that the third tier covers any gas use above 95 pct of the household average, not the last 5 pct of consumption)

BEIJING, March 21 (Reuters) - China will introduce tiered natural gas pricing for residential use, with all cities consuming gas set to launch new pricing mechanisms by the end of 2015, a move that will help reduce excess consumption and raise revenues for towngas firms.

The world's top energy consumer is also a huge polluter because of its dependence on coal-fired power stations, and authorities are seeking to raise the share of natural gas in its energy mix to 8 percent by 2015, from around 5 percent now.

However, household gas prices have been capped at much lower levels than those for non-residential users, which the National Development and Reform Commission (NDRC) said has led to supply distortions and waste.

That in turn has helped to strain domestic gas supplies and increase the need for imports, which accounted for more than 30 percent of China's gas consumption last year.

Under the current pricing scheme, the more gas households consume, the more subsidies they can enjoy. The NDRC said less than 5 percent of households now consume nearly 20 percent of the total residential gas supplies.

The NDRC, the top economic planning agency, said three pricing bands would be introduced by the end of next year, with the first covering 80 percent of the average monthly consumption volumes for household users, and the second the next 15 percent. The third tier would cover any consumption above 95 percent of the monthly household average.

"Towngas companies will be the biggest beneficiary," said an analyst with China's largest gas producer CNPC.

China last July raised the price that local distributors pay for gas for non-residential use by 15 percent, the first nationwide move to reduce losses incurred by state-owned gas producers and importers as a result of artificially low domestic prices. Prices for residential use were not raised at that time. (Reporting by Judy Hua and David Stanway; Editing by Paul Tait and Tom Hogue)

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