March 21, 2014 / 11:16 AM / 4 years ago

UPDATE 2-China to introduce tiered gas prices for household users

(Updates with background, company RICs)

By Judy Hua and David Stanway

BEIJING, March 21 (Reuters) - China will introduce tiered natural gas pricing for residential use by the end of 2015, as the world’s biggest energy user moves to reduce consumption and raise revenues for companies supplying city gas.

The reforms are part of a broad plan by Beijing to bring regulated domestic fuel prices more in line with those on the global market. The move to a nationwide tiered pricing scheme for residential gas also follows pilot reform programmes launched in six cities in Jiangsu province last year.

The National Development and Reform Commission (NDRC), the top economic planning agency, said three pricing bands would be introduced by the end of next year. The first would apply to 80 percent of average monthly household volumes, and the second to the next 15 percent. The third-tier price would kick in for any volumes more than 95 percent of the monthly household average.

The NDRC said that city gas suppliers, including the Hong Kong-listed China Gas Holdings and ENN, could use the increasing revenues to help offset the rising cost of storage and the purchase of liquefied natural gas (LNG).

“Towngas companies will be the biggest beneficiary,” said an analyst with China’s largest gas producer CNPC.

A 2011-2015 “five-year plan” for natural gas said that higher prices would be crucial to encourage firms like PetroChina to source more gas from abroad and also invest more in domestic exploration and production, but China has so far been moving slowly to cushion the impact on consumers.

China hiked the price of imported natural gas by more than a quarter last November in a bid to encourage more pipeline deliveries by PetroChina, which had been running its natural gas import business at a loss. It also raised prices for industrial and commercial use last July.

But household gas prices have been capped at much lower levels than those for non-residential users, which the 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.

Promoting natural gas use has become a key priority in the world’s top energy consumer as it tries to reduce pollution and ease its dependence on coal-fired power stations. Authorities are seeking to raise the share of natural gas in its energy mix to 8 percent by 2015, from around 5 percent now.

With demand soaring as more cities switch to gas from coal for heating and power, the share of imports in overall natural gas use is expected to rise to 35 percent by 2015. (Editing by Tom Hogue)

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