August 17, 2016 / 10:25 AM / 3 years ago

China drafts rules to lower natural gas transportation costs

BEIJING (Reuters) - China’s state planner has proposed new rules regulating the cost of transporting natural gas by pipeline that analysts say will lower prices in order to boost consumption of the cleaner-burning fuel.

The government will use an “allowed cost plus reasonable margin” scheme in setting the transportation cost for natural gas, the National Development and Reform Commission (NDRC) said on Wednesday on its website.

Under the proposal, natural gas pipeline operators will fix their transportation prices by compiling the cost of their fixed assets such as pipelines and storage, operating costs and depreciation, and then adding a fixed 8-percent margin to those costs, the NDRC said.

However, the 8 percent margin only applies to pipelines with a capacity utilization higher than 75 percent, the NDRC said, without stating what the margin would be for pipelines using less than 75 percent of their capacity.

The lower margin should lower the gas costs for consumers as the current margin pipelines are making is believed to be higher than the 8 percent proposed by the NDRC.

Analysts said the changes underscore Beijing’s plan to lift sagging demand growth for natural gas, seen as the most efficient fuel to cut greenhouse gas emissions in the world’s largest emitter and tackle air pollution. China is the world’s third-largest gas consumer.

“The new regulation should help reducing the cost of natural gas,” said Diao Zhouwei, a Beijing-based analyst with IHS. “China’s reform of its natural gas pipeline is moving toward its planned direction. Focusing on tightening pricing regulations as well as lowering the cost through better transparency.”

Previously, transportation cost were set by the NDRC based on the individual pipeline projects. This new proposal would apply across companies rather than by specific pipeline.

Reporting by Meng Meng and Aizhu Chen; Editing by Christian Schmollinger

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