Guangdong Goads Major Energy Groups to Cut Gas Prices, Boost Clean Energy

Guangdong Goads Major Energy Groups to Cut Gas Prices, Boost Clean Energy

Tang Shihua

Date: Tue, 03/13/2018 - 11:29 / source:Yicai
Guangdong Goads Major Energy Groups to Cut Gas Prices, Boost Clean Energy
Guangdong Goads Major Energy Groups to Cut Gas Prices, Boost Clean Energy

(Yicai Global) March 13 -- The development agency of China’s economically-developed southeastern Guangdong province is hammering out a new policy to spur the three major national energy conglomerates to lower local natural gas prices to stimulate demand for clean energy, National Business Daily reported. 

The initiative seeks to induce the three firms – PetroChina Co., Sinopec Corp. and CNOOC Ltd. -- cut natural gas costs in the province, targeting a sale price of CNY2 (USD0.32) per cubic meter at local PetroChina gas facilities, per the report.

“It’s hard to deliver on the target now, as prices at PetroChina stations are cross-referenced. If prices drop in Guangdong, what should the other provinces do? The document is only intended to guide the companies, and no mandatory action is required at present,” an unnamed market insider told National Business Daily. 

In exchange, the provincial government will support companies agreeing to offer reliable long-term gas supplies at reduced prices to invest in and build natural gas electric power plants adopting the distributed energy generation model and other downstream facilities included in the provincial energy development plan, the commission stressed. 

Guangdong Natural Gas Grid Co. exclusively developed and operates the natural gas supply network in the province under current policy. All three energy groups are company shareholders with shareholdings adjusted every five years based on their respective gas supply volumes and prices to incentivize them to offer more competitive rates to secure a bigger stake in the monopoly firm. 

“Their shareholdings are rearranged every five years based on gas supply volume and prices, meaning that the company that supplies the most natural gas in Guangdong at the lowest cost will get the largest shareholding in the provincial company,” the source said. 

The commission will also ease opening of the local natural gas electricity plant market to third-party firms, competitively selecting investors to build new liquefied natural gas electricity-generating stations, with more measures in the pipeline to reduce the main provincial gas pipeline feed price and gas distribution prices in urban areas. 

Located far away from natural gas producing regions, Guangdong has the highest benchmark price in China, and the cost of building the local gas pipeline network is much steeper than in many other Chinese provinces. Guangdong’s overall gas price is about CNY0.3 greater per cubic meter than Beijing’s, CNY0.1 higher than that of Shanghai, CNY0.24 above Zhejiang province’s and CNY0.38 more than Jiangsu and Shandong provinces, public data show. 

The commission plans to lift natural gas consumption as a percentage of total energy use. Its energy restructuring plan foresees natural gas use growing 14 percent per year to hit 28 billion cubic meters by 2020. Gas will make up 11 percent of the total volume of non-renewable energy the province uses, though higher prices will obviously dampen market demand. 

China is amid a nationwide shift to clean and alternative energy sources and away from dirty fossil fuels to solve its intractable urban air-quality problems, a transition that has already achieved stellar air pollution reductions in major cities.

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Keywords: Natural gas, government policy, price change, Guangdong