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China is Planning a Natural Gas Price Increase in September

However, even after such an increase China’s prices for fuel will remain much lower, than elsewhere (e.g., in the US). At the same time experts note, that this increase will be very favorable for Chinese oil and gas companies, such as PetroChina and Sinopec, which are sustaining great losses due to a rapid growth of production expenses.

At the moment the share of natural gas makes up only 3% of the China’s energy basket, but by 2020 Beijing anticipates to increase this index at least two-fold. This is why CPR authorities intend to make a decision on an increase of internal natural gas prices, since it is still extremely unprofitable to produce gas in the country. There is another reason to increase gas prices – the Chinese authorities are trying to cut down the rapid growth of demand for this kind of fuel, which is still much cheaper than, say, coal or oil.

However, experts point out to the fact, that gas price increase should be implemented very prudently, since any unreasonable price increase may result in a substantial reduction of demand. The last time petroleum gas prices were increased in last November, when the increase made up about 30%, as RBC reports.

There is no doubt, that natural gas price increase was well timed: inflation in the country went down in June from 8% to 7.1%. “The current inflation level is quite acceptable and allows one to increase internal prices for fuel”, - China Economic & Business Monitor representative Su Chan states.

As of today experts cannot estimate the scale of gas price increase, as anticipated by Beijing. In their view, CPR’s authorities are doing all they can to ultimately bring fuel prices near the global rates. This viewpoint is confirmed by an abrupt growth of the number of transactions for import of liquefied natural gas (LNG) to the country. This April Chinese companies made two long-term agreements on LNG supplies from Quatar. PetroChina signed an agreement with Quatar and Royal Dutch Shell on supplies of 3 MT of LNG during 25 years, starting from 2011.

It is noteworthy, that Chinese oil and gas companies will benefit from the growth of natural gas prices. Besides, PetroChina and Sinopec have repeatedly asked Beijing to bring the domestic prices for fuel in compliance with the world ones to facilitate the process of new deposit development and capacity build-up. However, the Chinese authorities couldn’t venture for such a step for a long time, being afraid of another splash of inflation, which was at the 12-year maximum level this April. “This decision will depend on many factors. It is most likely, that stability will be the priority of Beijing within the nearest term”, - Katriona Scott from Gas Strategies Consulting notes.

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