BEIJING - When
Belarus reluctantly accepted a sharp rise in the
price of Russian gas in the dying minutes of 2006,
China started preparing for higher natural-gas
prices in the middle and long terms.
A
last-minute natural-gas pricing deal between
Russia and Belarus was inked on December 31 under
which Belarus would have to buy Russian gas at a
much higher price of US$100 per 1,000 cubic meters
in 2007.
Such aggressive action taken by
Russia indicates that it is unlikely that China
will be able to import natural gas from Russia
at a
low price in the future, though negotiations
between Beijing and Moscow over the construction
of a Sino-Russia gas pipeline are still in
progress.
Experts with China Petrochemical
Corp (Sinopec) said China's increasing dependence
on natural gas imported from Russia means that
domestic gas prices may go up.
A report by
the Shanghai Securities News said talks between
China National Petroleum Corp (CNPC) and Russia
about importing natural gas from Sakhalin-I had
foundered on price issues. China's top oil
producer signed a gas-import framework agreement
in 2006 with Sakhalin Energy Investment, the
company that operates the Sakhalin projects and
which is a major Russian exporter of liquefied
natural gas (LNG).
When attending an
industrial forum in November, Koert Vonkeman, vice
president for marketing at Sakhalin Energy
Investment, said China will have to pay
international prices for LNG imports sooner or
later.
The international gas price has
surged to new levels because of the soaring
international oil price, but China's natural-gas
price - which is controlled by the government -
remains comparatively low.
China began to
import LNG from Australia last year for its first
LNG project in the southern province of Guangdong.
Jointly operated by China National
Offshore Oil Corp (CNOOC) and British Petroleum,
the country's first LNG project absorbs 3.7
million tons of LNG annually from the Northwest
Shelf Australia LNG project under a 25-year
contract. The agreed price is considerably lower
than current international prices.
The
government plans to build 10 or 11 LNG terminals
by 2010, increasing imports to 30 million tons per
year.
Price has become a major obstacle to
China's LNG plans. According to National
Development and Reform Commission (NDRC)
statistics, the current ratio for domestic oil and
natural-gas prices is 1:0.24, while the
international equivalent level is 1:0.6.
A
new round of gas-price hikes is in the pipeline.
Beijing is planning to raise the price of
household natural gas by nearly 8% - up 0.15 yuan
to 2.05 yuan (26 US cents) per cubic meter.
Haikou, capital of southernmost Hainan
province, saw the price of household natural gas
rise from 2.10 yuan per cubic meter to 2.60 yuan
at the end of last year.
The price
adjustment is based on the NDRC natural-gas
pricing mechanism launched at the end of 2005,
according to which the benchmark factory prices of
gas will change each year in line with the prices
of other resources such as petroleum, with a
maximum year-on-year adjustment of 8%.
The
NDRC said a long-term goal in China's price reform
in the natural-gas sector is to have a complete
market-oriented price mechanism. NDRC sources said
a draft for resource-pricing reform has been
passed.
The new pricing mechanism for
resources such as oil, natural gas, coal,
electricity, water and land should reflect two
factors - resource rarity and the cost of
environmental pollution, according to the NDRC.
Local suggestions are being solicited for
the draft, which will soon be submitted to the
State Council, China's cabinet.
NDRC
estimates show that China's demand for natural gas
will rise to 100 billion cubic meters in 2010. The
country's gas output was 50 billion cubic meters
in 2005.
Although there are still some
problems concerning the Sino-Russian gas pipeline
still to be resolved, the Chinese and Russian
sides are pushing hard for mutual energy
cooperation. CNPC is conducting negotiations with
the owners of the Sakhalin-I and Sakhalin-II
projects over the issue of gas purchasing. The
parties involved have so far failed to reach an
agreement over the price of gas, which will not be
cheap if it is transported to China. Experts say
it will be impossible for an agreement to be inked
this year.
Russia will become a World
Trade Organization member this year and the
country has promised to remove energy subsidies,
which means residents in neighboring countries and
even Russians themselves will have to pay a much
higher price for natural gas.
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