Beijing has raised the price of natural gas transmission for the first time in more than five years, a move widely seen as a precursor for gas price rises to reflect higher costs of production from new domestic fields and more expensive imports.
The higher costs are expected to be passed on to end-users although it will take time, especially for residential customers, as public hearings will be required. And because the size of the increases is subject to the discretion of local governments, which have to consider consumer inflation pressure, this is expected to bring some short-term uncertainty on the profitability of downstream city-gas distributors.
Gas transmission fees were raised by 8 fen per cubic metre in some southwestern and northeastern regions on Monday, said Kevin Zhuang Rongjin, an official at the Guangdong Oil and Gas Association. 'The National Development and Reform Commission has sent a circular to the local governments, which in turn informed local city-gas distributors.'
Regions affected so far include Tianjin, Henan, Qinghai, Liaoning, Jilin, Heilongjiang and Shandong in the north and northeast, and Chongqing, Sichuan, Yunnan in the southwest, the National Business Daily reported, adding the rise was to offset losses of certain gas pipeline operators experiencing increasing costs.
The 8 fen rise is uniformly slapped on existing fees, which vary by distance, and means users nearest to gas fields who previously enjoyed low gas prices will bear the highest percentage price increase. For example, a transmission distance of 50 kilometres or less is charged 3.6 fen per cubic metre, meaning the rise is 2.2 times the existing fee.
Zhuang expected the rise to be extended to other regions and gas prices will also be increased later at the well-head and end-user levels to reflect higher costs at new domestic fields and more expensive imports from Malaysia, Turkmenistan, Uzbekistan and Australia due to arrive this year and next.
The price was last raised in late 2007 by about a third, but it only affected industrial and vehicular users. Before that, prices were raised in late 2005 by 10 per cent.
New domestic fields such as Sinopec's giant Puguang field that just began production were granted a well-head price of 1.28 yuan a cubic metre, compared with 48 fen for PetroChina's west-east gas pipeline that began operation in 2005. The transmission fees range between 6 fen and 84 fen a cubic metre for destinations from Sichuan to Shanghai.
Ken Ong, chief financial officer of China Resources Gas, which operates 27 city-gas distribution projects on the mainland, said the transmission fee rise will have limited impact as it amounts to just over 3 per cent of the firm's average selling price.
BOC International analyst Peter Yao Sheng expected city-gas distributors' profit margins to be 'slightly' eroded, although it would be offset by strong gas demand growth.