China gas distributors profitable as price controls slam PetroChina

The mainland's natural gas sector is a tale of two industries: a downstream distribution business where operators are enjoying record profits thanks to rising gas demand and stable margins and an upstream supply trade whose profit has been seriously eroded by losses on contracts for long-term imports.

With Beijing dragging its feet on raising the price of gas, the sustainability of the situation whereby resource producers subsidise consumers is increasingly being questioned.

"While [industry regulator] National Development and Reform Commission (NDRC) tries to encourage gas use in China, the gas [supply] chain is increasingly unstable," wrote analysts at American brokerage Sanford C. Bernstein. "The government may not like it, but either gas prices will need to rise or supply and consumption will slow."

To address worsening air pollution in major cities, Beijing wants to raise gas consumption by an average 16.4 per cent from 2012 levels to 230 billion cubic metres (bcm) by 2015.

If realised, it would raise the contribution of gas to total primary energy consumption to 7.5 per cent in 2015 from 4.6 per cent in 2011.

It would also cut carbon dioxide emissions by 520 million tonnes each year from 2011 to 2015 as less coal would be consumed, according to the 12th five-year plan.