The State Development Planning Commission has decided to increase the base price of natural gas by 3 fen (0.36 US cents) per cubic metre, that is, by about 2-3 per cent, as of January 1.

The government at the same time is also integrating purification, or processing, costs into the new price in an attempt to make the pricing mechanism more transparent.

A statement from PetroChina, the nation's largest gas producer, said the government put natural gas price reform on its agenda after the successful reform of crude and refined oil prices.

Analysts said the old base price for natural gas was so low it discouraged companies from exploring for and pumping more gas.

"The adjustment has shown the government's commitment to promote the development of gas as a clean energy," said Huang Yan, president of PetroChina, which controls over 80 per cent of China's gas reserves.

Huang said the price raise would bring fat profits to the company. PetroChina sold 13.6 billion cubic metres of natural gas in 2000.

Huan Guoyu, an analyst with the State Council Office for Restructuring the Economic System, said the price increase signals that the government wants to balance the profits among producers, distributors and sellers.

"The major problem for the gas industry is that the low base price has failed to spur companies to produce more, while the high transmission and distribution charges push the final price too high for users to accept," said Huan.

Analysts say the reform was necessary to get the industry off the ground, to help the nation reduce the traditional reliance on coal and reduce environment pollution.

China aims to increase the natural gas component in its energy consumption mix to 8-10 per cent in 10 years from its current 2.1 per cent.

The price reform came on the heels of a series of gas price increases in some regions last year. Last June, PetroChina raised its natural gas prices in Sichuan Province by 3 fen (0.36 US cents) per cubic metre, following earlier regional price rises in Beijing, Tianjin and other parts of North China. It is estimated that the price rise in Southwest China's Sichuan Province should have brought 80 million yuan (US$9.7 million) into the company's coffers last year.

PetroChina has pinned high hopes on the project to cash in on their rich gas reserves in the west, as its oil output is waning.

Shi Xingquan, vice-president of PetroChina, said the company hopes to see the gas sector grow as a new profit pump in 5 to 10 years, by laying several long-distance pipelines to carry its gas reserves to markets.

"We have rich reserves. The next thing we should do is cash in on them," Shi said.

To date, PetroChina has found four large gas fields in West China's Tarim, Qaidam, Ordos, and Sichuan basins. The four fields are estimated to have 58.9 per cent of China's total gas reserves.

Xiao Zhongwei, spokesman for the China National Offshore Oil Company, the third largest gas producer in the country, said the new pricing would not affect the company.

"Our price is a result of negotiations with our buyers, and is exempt from the government-set price," said Xiao.

(China Daily January 24, 2002)