As its name suggests, PetroChina Company Ltd is the listed arm of state-owned China National Petroleum Corporation (CNPC). It is China's biggest oil producer, and is listed in Hong Kong, New York, and Shanghai.
Mainland gas needs price rise, analysts say
With natural gas imports to the mainland on the rise, analysts say urgent changes are needed to fix severe price distortions in the system
The biggest event in the mainland's natural gas sector this year is expected to be a long-awaited nationwide price increase and further reforms of an antiquated pricing system.
State-backed PetroChina, which has suffered tens of billions of yuan of annual losses importing gas at international prices and selling at lower prices set by Beijing, will be the main beneficiary of the reform, while subsidised end users will end up losing out.
Some analysts say a rise - the first since mid-2010 - is badly needed, because the price distortion has battered the financial capacity of and incentive for PetroChina, the nation's biggest gas producer and importer, to develop domestic resources and import more to meet rising demand.
"The clock is ticking for gas price reform," analysts led by HSBC head of Asia oil, gas and petrochemicals research, Thomas Hilboldt, said in a report.
Already, Sichuan province announced a gas price increase of 16 to 20 per cent early last month, a Jefferies research report said.
Zhejiang province is also seeking Beijing's approval for an approximate 25 per cent hike to city-gate prices, according to industry media ICIS.
The city-gate price is the one at which wholesalers buy the gas.
Beijing last year asked Guangdong and Guangxi to start trials to link domestic gas prices to imported fuel - fuel oil and liquefied petroleum gas - to make prices more market-oriented. Eastern China is tipped to be next.
Part of the urgency is because the mainland's imports of gas, a much cleaner-burning fossil fuel than coal, have risen rapidly since they began in 2006. Imports' share of total consumption rose to 21.6 per cent in 2011 from just 1.8 per cent in 2007.
Based on import and consumption projections, this could further rise to as high as 40 per cent by 2015. At this level, state-backed gas producers will increasingly find it hard to sustain the existing level of subsidisation.
Mainland residential gas prices were last raised by an average 25 per cent in mid-2010 and by 12 per cent in late 2005. In addition to these price rises, industrial and transport users absorbed an extra 35 per cent increase in late 2007.
Still, mainland prices remain at least 40 per cent below the usual levels in Asia, which have been closely linked to crude oil prices due to tight supply.
Beijing has been cautious in raising energy prices partly for fear of stoking consumer inflation and causing social unrest in poorer parts of the country. To get around this, it sometimes only raises prices for industrial and commercial users.
Some analysts, however, think the impact of gas price increases may be smaller than Beijing fears.
"We believe a yearly increase of 20 per cent is affordable, particularly in the higher-income coastal provinces such as Guangdong and Jiangsu," Mirae Asset Securities head of energy research Gordon Kwan wrote in a report.
"We don't believe higher gas prices will trigger significant inflation in China as natural gas currently makes up less than 4 per cent of China's energy mix."
According to the gas industry's development plan for the five years to 2015 issued last month by industry policymaker the National Development and Reform Commission, Beijing wants to establish a market-oriented gas pricing mechanism that reflects demand and supply. Prices are now set by the state based on a cost-plus-profit-margin basis.
The government also wants a nationwide gas trading platform, and to roll out seasonal pricing so peak demand can be moved to non-peak periods and create savings.
"Although we don't expect any of [these] to take place immediately, we highlight the urgency of reform given [rising import dependence] ... Major importers are likely to suffer further if gas price reform continues to lag behind gas market development."
Beijing has erred on the conservative side when it comes to estimating the pace of growth of gas demand. In the final version of the five-year industry development plan issued last month, it projected demand to rise from 131 billion cubic metres (bcm) in 2011 to 230 bcm in 2015, lower than the 260 bcm in the draft version of the plan reported by state media earlier.
"Given the insufficient [pipeline and storage] infrastructure, steadily rising import volume of gas that is dearer than domestic gas, and relatively high price-sensitiveness of domestic gas consumers, one cannot be too optimistic on the pace of market development," the five-year plan document said.
However, even when revised down, estimated demand represents an annual growth of 12 per cent, hardly a slow rate, as the mainland burns more gas to cut pollution.
Hilboldt said the lowered demand estimate meant imports might be given less priority.
The mainland has signed contracts to import 93.5 bcm of gas in 2015. Adding to projected domestic output of 176 bcm, the total supply could reach 269.5 bcm.
It is not known whether the contracts' terms will allow importers to defer part of the imports if demand comes in lower than anticipated. Otherwise, domestic gas producers will need to cut output levels to absorb a rise in imports.