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Highlights

China plans to raise citygate prices of natural gas consumed by non-residential users later this year, the National Development and Reform Commission said in its work report issued Wednesday at the start of the annual session of the National People's Congress.

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This would be the first natural gas price hike since July last year, when the central government increased citygate prices for non-residential gas consumers by an average 15.4% across the country, resulting in an average citygate price of Yuan 1.95/cubic meter, or about $8.90/MMBtu.

The NDRC said Wednesday that it will "make timely adjustments to city gate prices for non-household natural gas equivalent to the amount used in 2012."

This refers to the two pricing tiers for gas that the government created last July -- one comprising existing supply going into each province based on 2012 consumption of 112 billion cubic meters and another consisting of incremental supply added during 2013, with the prices pegged to oil.


When announced last year, the average differential between the two pricing bands was over 40%, although more than 90% of gas was still priced at the lower tier.

The NDRC had said last year that the ultimate aim was to steadily raise the lower tier prices for existing supply so that both price bands converge to create a fully market-oriented gas market by 2015.

The government has repeatedly said it will deregulate the gas market in order to balance burgeoning demand with supply, including volumes from overseas. State-owned companies such as PetroChina had previously also been making huge losses on imports of pipeline gas and LNG, and selling the volumes at lower domestic prices.

In its latest report, the NDRC also pledged to establish "a sound system of tiered pricing" for household consumption of water and natural gas.

Non-residential users of gas include industrial and commercial customers and they accounted for 80% of total gas demand in 2012, analysts previously said. The remainder are residential users, including households, city gas users and schools, but excluding central heating systems.

Gas prices for residential users will be set by local governments, the NDRC said last year.

These measures are part of the government's broader efforts at implementing energy price reform for natural resources. The NDRC also said it would adjust the prices of on-grid wind power "in good time" as well as carry out price reforms of electricity transmission and distribution on a trial basis.

In addition, it said it would improve the mechanism for correlating coal and electricity prices.

The on-grid tariff is the price at which power companies sell electricity to grid companies, and is distinct from prices that end-users pay.

--Song Yen Ling, yenling.song@platts.com
--Edited by Geetha Narayanasamy, geetha.narayanasamy@platts.com