China Business

Feb 8, 2006

Market pricing likely to push up energy prices

BEIJING - Energy product prices in China are likely to rise across the board in 2006, as the government reforms energy product pricing mechanisms and reduces state intervention in pricing. In late 2005, the prices of some energy products rose sharply and this momentum is set to continue in 2006.

On December 27, 2005, the National Development and Reform Commission made major adjustments to the pricing mechanisms for two major energy products - power coal and natural gas. The pricing of coal for electricity generation underwent a change from

government intervention to independent negotiations between the supply side and the demand side. Around the same time, a new mechanism for setting factory prices of natural gas came into being.

Coal accounts for two-thirds of China's total energy consumption at present. The price of coal is likely to rise on the expectation of large orders for coal after the Spring Festival. In addition, the domestic price of finished oil is likely to go up, as China's demand for oil continues to increase.

The factory price of natural gas is presently guided by the government and is allowed to float within the given range according to the market demand-supply situation. As the price is to be adjusted according to the prices of crude oil, coal and other products, the price of natural gas is also set to rise.

As for electricity, its price will fluctuate as a competition mechanism is adopted in some areas, with increases expected.

(Asia Pulse/XIC)

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