China has announced pilot reforms on natural gas pricing in two regions, as part of efforts to steer towards a more market-oriented pricing mechanism. The scheme has already been rolled out in Guangdong Province and Guangxi Zhuang Autonomous Region, as of Monday. According to China’s top economic planner, local suppliers are allowed to set their own supply rates, as long as these prices do not exceed the city-gate ceilings. The prices will be adjusted annually, and later quarterly.

China has unveiled a pilot scheme, to link city-gate natural gas prices with prices of imported fuel oil and liquefied petroleum gas, or LPG.

Based on 2010 prices for imported fuel oil and LPG, which correspond to crude oil prices of 80 dollars a barrel, the city-gate ceiling price in Guangdong was set at 2.74 yuan per cubic metre, and 2.57 yuan in Guangxi. These prices are below those from other domestic LPG providers. Analysts say this won’t push up average gas prices in the area.

Cao Changqing, director of Price Department of NDRC said: "The reason we chose Guangdong province and Guangxi Zhuang Autonomous Region to start the pilot program is because the natural gas price is relatively high in these two regions. Therefore this pricing reform won’t drive up local gas prices."

Under the scheme, the prices of natural gas will be pegged to that of alternative energies, using the "net-back" calculation methods that include all the costs companies incur to bring products to the marketplace.

Cao said:　＂The adjustment of the natural gas price is according to the price change of alternative energy sources. To form a mechanistic operation system in these two areas, we start with a once a year adjustment, an eventually a seasonal adjustment."

Experts from the Energy Research Institute say China’s natural gas consumption has soared in recent years. The pricing reform is seen as significant, in terms of securing supplies and boosting usage of this clean energy.

Zhou Dadi, researcher of Energy Research Institute of NRDC said: “To apply the natural gas pricing reform mechanism, it helps more residents use natural gas more efficiently - it is significant to the country’s economic development."

The latest move is intended to help rebalance China’s economy and encourage its industries to become less energy intensive.

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