China Set to Scrap Natural Gas Price Caps to Support Distributors

China’s top economic planning body has asked major natural gas distributors and local authorities to remove the fixed price caps for households by September, sources familiar with the discussions have told Bloomberg.

The move is aimed at supporting China’s natural gas distributors, many of which have seen profits evaporate amid high import prices for LNG but a cap on household prices. So far, these distributors have not been able to pass on the higher costs of importing the gas to consumers.  

The removal of the price cap will lead to higher prices for households, the sources have told Bloomberg.

Industrial consumers, on the other hand, would benefit from the price cap removal and a more market-based approach to pricing. Industry has had to pay higher rates for the natural gas they consume so far.

The request of the National Development and Reform Commission (NDRC), the top economic planner in China, would support gas importing and distribution companies. It could also spur additional demand for LNG imports into China as distributors are set to profit from selling the gas at prices that are more aligned with the market conditions and fundamentals.  

“China is likely to dominate LNG demand growth this decade as its industry seeks to cut carbon emissions by switching from coal to gas,” Steve Hill, Executive Vice President for Shell Energy, said in Shell’s LNG Outlook 2024.

Industrial coal-to-gas switching gathers pace in China and will support rising global demand for LNG, said Shell, which is the world’s top LNG trader.

China imported in February a record volume of LNG for the month, as buyers took advantage of plummeting spot prices in Asia amid ample inventories and tepid demand. Chinese LNG imports in February – the highest-ever for February – topped 5.5 million tons, rising by 15% compared to February last year, ship-tracking data compiled by Bloomberg showed last month.

By Tsvetana Paraskova for Oilprice.com

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