China will raise the wholesale price of natural gas for non-residential use by 20.5 percent from Sept. 1, the second step in overall energy price reform.
The National Development and Reform Commission (NDRC), the top economic planner, said on Tuesday the price adjustment will be based on the 112 billion cubic meters of natural gas industrial and commercial users consumed in 2012, and the price for additional consumption since then will remain unchanged.
After the adjustment, the wholesale price of non-residential natural gas will rise by 0.4 yuan to 2.35 yuan (about 38.2 U.S. cents) per cubic meter.
This latest hike comes after a similar 15.4-percent increase for non-residential gas consumers in July last year when the NDRC launched a new pricing mechanism as part of broader energy reforms.
The commission drew a line under industrial and commercial natural gas consumption in 2012. New consumption since then uses a different pricing mechanism as the first step.
The new pricing mechanism has produced "positive results" in terms of supply and demand, thus quickening the pace of domestic gas development and the introduction of overseas resources, said the commission.
The third and final step will be a new, uniform price system by 2015 before eventually allowing energy prices to be decided by the market itself.
A multi-tier and progressive pricing mechanism for residential gas should be in place by 2015, offering cheap gas to about 80 percent of households while charging other households higher prices.
"Now is a good time to advance reforms, as the economy is slow and demand is weak," said Wang Zhen, director of China Energy Strategic Research Institute with the China University of Petroleum.
The NDRC also announced on Tuesday that it will give up its control of the wholesale price of imported liquified natural gas (LNG), shale gas and coalbed methane from Sept. 1, letting suppliers sign independent contracts with downstream users.
A spokesman for the commission said demand for natural gas will expand rapidly as incomes rise and air pollution is reduced. Customs data showed China imported 53 billion cubic meters of natural gas last year, 30 percent of total consumption.
China had sought to free up price control over imported shale gas and coalbed methane in 2011, but importers were unwilling to take their imports to the pipeline network due to low wholesale prices at pipelined stations.
The absence of efficient transportation coupled with importer reluctance led to a surplus of imported LNG, offshore natural gas and other unconventional gas while piped natural gas came under huge supply pressure. This prompted improvements to pipelines and storage facilities in the past two years.
Chi Guojing, secretary-general of the China Gas Association, said the price change should encourage development of domestic resources and the import of more natural gas. With the government relaxing control, the market can now respond more quickly to shortages in winter, he added.
Among non-residential users, the commercial service sector will be most resilient to the hikes. Gas-fueled buses and taxis will still enjoy cost advantages too.
Industrial enterprises that rely heavily on natural gas for production, such as gas-fired power plants, will be under greater pressure, but the rise will be waived for the time being for fertilizer makers, a sector that is struggling, with changes applied "at an appropriate time later".
Although changes principally affect non-residential users, households, (particularly those in the north) will have to pay more this winter because natural gas for collective heating is considered industrial use.