Pipeline project to charge differing rates for viability
The PetroChina-led west-east pipeline project will charge different customers different gas prices to make it viable, a source close to the project said.
PetroChina, which is in negotiations with potential gas buyers, has so far not revealed the pricing structure of the project - a deciding factor on gas demand and the project's viability.
Power companies, such as H share Huaneng Power International (HPI), have been complaining that Beijing's indicative average gas sales price (value-added tax inclusive) of 1.29 yuan (about HK$1.21) a cubic metre is too high for the gas-fired plants they plan to build.
Households are expected to be able to afford higher gas prices, particularly in newly developed property projects where conversion from alternative energy sources is not an issue.
In a research report, American brokerage Goldman Sachs said HPI's parent China Huaneng Group and international oil industry sources suggested that a price range of 90 fen to one yuan per cubic metre would be more viable for gas-fired power plants.
The report estimated that for a gas-fired plant to have a return on investment of 10 per cent, the gas price would need to be about 90 fen per cubic metre, based on a 40 per cent utilisation rate (3,500 hours a year) and a flat power tariff of 34 fen per kilowatt hour.
The return would drop to 2 per cent if the 1.35-yuan indicative gas price for Shanghai was asked of gas-fired power plants.
However, for co-generation (heat and power) plants, the state-guided gas price of 1.29 yuan per cubic metre would generate a 12 per cent return, assuming a 75 per cent utilisation rate (6,500 hours a year).