More than a dozen Chinese provinces and cities have increased residential natural gas prices since late last month after the nation’s top economic planner loosened market controls.
Hebei and Hubei provinces, as well as the city of Xian, are among jurisdictions that have approved price hikes of as much as 0.4 yuan ($0.06) per cubic meter, according to local adjustment plans seen by Bloomberg.
Prices paid by households could be revised as often as every six months under the plans. They had previously been kept unchanged for years in many locations.
China’s National Development and Reform Commission issued a decision paper to local governments and gas suppliers in mid-June allowing them to adjust prices to reflect fluctuations in their fuel costs, according to people familiar with the change. The new system will still provide protections against sharp jumps for consumers, said the people, who asked not to be identified because the information isn’t public.
The NDRC didn’t immediately respond to a request for comment.
Read More: China May Abandon Fixed Natural Gas Prices for Households
The move comes after local gas utilities had to bear the brunt of soaring costs for imported gas last year following Russian’s invasion of Ukraine. It’s also evidence that China is continuing a slow-and-steady approach to gradually introducing more market-based rules to its highly regulated energy system.
Asian liquefied natural gas futures jumped from as low as $2 per million British thermal units in 2020 to as high as $70 last August. They’ve since retreated, and settled at $10.89 per million Btu on Friday.
The NDRC has incorporated consumer protections in the new rules, suggesting an upper limit for residential price hikes of 0.5 yuan per cubic meter every six months, an NDRC document seen by Bloomberg shows. That translates to around $2 per million Btu, according to Bloomberg calculations. There’s no limit on downward revisions and also no cap on adjusting prices for commercial and industrial customers.
The new rules will let pipeline gas suppliers adjust prices as often as every month or quarter for commercial and industrial users, according to the document. A previous system allowed some cities, such as Wuhan in Hubei province, to go a decade without adjusting residential gas prices.
While controlled prices benefited consumers, they took a toll on utilities who had to cope with volatile costs. Some utilities couldn’t afford enough gas last winter, forcing residents to spend hours at a time without heat.
The new rules give local governments the power to set prices based on the cost of local supplies, using a weighted average of domestic production and pipeline and liquefied natural gas imports, according to the NDRC document. They can also refer to price indexes set by exchanges in Shanghai and Chongqing.
The move shifts natural gas pricing in the direction of gasoline and diesel, which are adjusted every two weeks based on an index of global crude prices. The price of coal, China’s mainstay fuel, is now carefully controlled after prices soared due to shortages in 2021, leading to the country’s worst power crunch in years.
The rules apply to gas delivered by pipelines, which accounts for the vast majority of supply in China. There’s also a sizable market of LNG delivered by trucks, mostly for transportation and industrial use, which has always been allowed to have free-floating prices.
The Week’s Diary
Monday, July 24:
- Nothing major scheduled
Tuesday, July 25:
- S&P’s Beijing Commodity Market Insights Forum
- CATL earnings
Wednesday, July 26:
- Nothing major scheduled
Thursday, July 27:
- Chinese industrial profits for June
- International Conference on Power and Energy Technology, Tianjin, China, July 27-30
Friday, July 28:
- China weekly iron ore port stockpiles
- Shanghai exchange weekly commodities inventory, ~3:30pm local time
On the Wire
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Beijing is on a mission to revamp its state-owned enterprises, and show the world that investing in President Xi Jinping’s China can reward everyone from domestic savers to skeptical money managers.
China’s northeastern province of Liaoning has ordered mines to shut and evacuated 5,590 residents due to flooding, with rainfall expected to continue over the next two days.
