Originally published in China Practice Update
E-communication, January 18, 2012
On December 26, 2011, the National Development and Reform
Commission of China (NDRC) released the Circular of the
National Development and Reform Commission on Initiating Pilot
Reforms for Natural Gas Price Formation Mechanisms in Guangdong
Province and Guangxi Autonomous Region, NDRC Pricing  No.
3033 (the "Circular"), promulgating rules that
authorize a pilot reform program for wholesale and retail natural
gas prices in Guangdong and Guangxi. The ultimate goal of this
pilot reform program is to liberalize wellhead prices of natural
gas and allow them to be guided by the market, while the government
retains control over tariffs for the pipeline transportation of
China currently links its natural gas prices to production
costs. Under this pilot program, the new pricing mechanism for
natural gas will be more market-guided in the two provinces. The
city-gate prices of natural gas will be linked to the prices of
certain forms of alternative energy that are formed through market
forces, and the natural gas prices at various stages will be
adjusted accordingly. For example, the wellhead price will be the
city-gate price minus the costs of pipeline transportation.
"City-gate price" refers to the sales price of natural
gas pumped at the "city gate" where the natural gas is
delivered from suppliers to buyers (including local pipeline firms,
urban gas fuel firms, and direct bulk users).
Buyers and sellers in the two provinces will be able to
negotiate their respective city-gate prices under price caps that
have been set at RMB2,740 per cubic meter for Guangdong and
RMB2,570 per cubic meter for Guangxi. The downstream sales prices
of natural gas subsequent to city-gates will be controlled by local
pricing administrations, which can link the downstream prices to
the upstream prices and hold hearings on natural gas prices.
City-gate prices will apply to pipeline-transported natural gas
produced domestically at onshore fields and imported gas (including
shale gas, coal-bed methane, coal gas, and other kinds of
unconventional natural gas). City-gate prices will be adjusted once
per year, and the frequency of adjustment will gradually increase
to once every six months or every quarter. The NDRC expects to gain
experience from the pilot reform program and then extend the new
natural gas pricing mechanism nationwide.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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