PetroChina issues new downstream pipeline gas sales contract rules for 2024

PetroChina, the largest natural gas and pipeline gas supplier in China, has revised the pricing rules for its 2024-25 downstream pipeline gas sales contracts, according to industry sources including companies that buy the gas.

State-owned PetroChina disclosed the new contract framework to its customers as early as mid-March, and the contracts took effect from April 1 onwards, the sources said.

The full impact of the new contracts on end-user prices is not fully clear, because different provinces will implement different changes, and market participants said they expect mixed results depending on the timing and volume of the sales, as well as the type of offtaker involved.

PetroChina's downstream contracts typically break down pricing according to different sources of gas (imported, domestic, onshore, etc), the economic sector consuming the gas and the time of the year when the gas is supplied.

One of the main changes in the 2024-25 pipeline contracts is that PetroChina no longer classifies the buyers into residential and non-residential users, and all customers buying regulated gas have to pay the same 18.5% premium to local city-gate gas prices.

Under China's complex downstream gas pricing mechanism, unregulated gas covers imported LNG, offshore natural gas, unconventional gas like shale gas, imported pipeline gas from projects launched after 2015 such as pipeline gas from Russia, and city-gate gas prices in a few provinces. Onshore natural gas and imported pipeline gas under projects launched before end-2014 such as pipeline gas from Central Asia and Myanmar, are still regulated.

Overall, PetroChina has lowered the share of regulated gas supply and raised the share of unregulated volumes in the new sales contracts this year.

This change is likely because the share of PetroChina's regulated natural gas in its total gas supply has been declining, as new gas supply sources are mainly unregulated ones, such as domestically produced unconventional gas, pipeline gas imports from Russia and imported LNG, Lu Xiao, China research director for Gas and LNG at S&P Global Commodity Insights said.

There have also been some changes to the pricing of gas offered for the non-heating season from April to October, and the heating season from November to March, which has helped smoothen the price difference between the peak and non-peak seasons, reflecting growth of gas-fired power generation in summer, analysts said.

Another key change in the contracts has been to link the price of the 3% of gas sold on a flexible basis to the spot imported LNG index, or CLD, published by Shanghai Petroleum and Natural Gas Exchange in September 2021, instead of Platts JKM.

PetroChina sales scheme for pipeline gas over 2024-25

Source: Downstream market participants

PetroChina sales scheme for pipeline gas in Guangdong over 2024-25

Note: PetroChina adopts different sales scheme in Beijing, Guangdong and Fujian province

Source: Downstream market participants

PetroChina sales scheme for pipeline gas over 2023-24

Source: Downstream market participants