National Development and Reform Commission

China opens antitrust probe into gas suppliers as shortage drives up prices amid cold snap

Seventeen companies have come under investigation since December 20

PUBLISHED : Wednesday, 27 December, 2017, 10:56am
UPDATED : Wednesday, 27 December, 2017, 10:37pm

China’s top energy price regulator has launched antitrust investigations on 17 firms including a unit of the nation’s largest natural gas supplier, and slapped fines on at least four gas and heat suppliers for flouting price rules amid winter shortages.

The move highlights Beijing’s reluctance to let market forces determine demand and supply of energy products at times of surging prices and shortages despite having partially liberalised energy prices.

Natural gas is a key winter commodity in a country which has a track record of putting social stability ahead of progress of energy pricing reform.

“Chinese government [officials] usually have their reading of the market, in case [it leads] to a tariff cut they will actively promote it ... in case of a hike they might hesitate,” said Dennis Ip, head of Hong Kong and China utilities equities research at Daiwa Capital Markets.

The 17 firms, which include the Daqing branch of PetroChina – the nation’s largest natural gas producer, importer and pipeline operator – have been probed for suspected anti-monopoly behaviour, the National Development and Reform Commission said in a statement on Tuesday.

This was aimed at maintaining “orderly competition in the natural gas market and protecting consumers’ legal rights”, it said, adding the probe began on December 20.

It did not elaborate on the circumstances in which the suspects might have flouted antitrust rules.

China’s natural gas distributors are granted sole regional concessions to build local pipe networks and sell the cleaner burning fuel.

Beijing has imposed last year an 8 per cent return cap on long distance pipeline operators’ assets, down from 10 to 12 per cent previously.

It has also slapped a 7 per cent cap return cap in the middle of this year on downstream city gas distributors’ assets.

PetroChina’s spokesman could not be reached by phone and did not respond to an email.

Ip said his concerns about the antitrust probes on gas suppliers – which would constrain their ability to pass higher winter gas procurement costs to customers – came from the NDRC’s past failure to properly implement a coal cost pass-through mechanism, leading to periodic losses for power generators.

Separately, four other gas and heat suppliers in the provinces of Heilongjiang, Zhejiang, Sichuan and Shandong were fined by the commission and ordered to return profits made from unauthorised price hikes and surcharges.

As local governments heed Beijing’s “war on air pollution” orders to convert industrial coal boilers and home coal burners into gas-fired units, gas consumption jumped 18.9 per cent in the year’s first 11 months from the same period last year.

Demand for all of last year grew 6.6 per cent from 2015.

The consumption spurt and lagging construction of storage facilities led to shortages during cold snaps, resulting in a change of policy to let short-supplied regions burn coal.

Energy stocks closed lower on Wednesday on news of the investigations. Gas distributor ENN Energy Holdings closed 1.9 per cent lower at HK$56.05, while rival China Gas Holdings lost 1.8 per cent to HK$21.7 and PetroChina’s gas distribution unit Kunlun Energy slid 0.7 per cent to HK$8.12.