In recent days, rumors about a sharp rise in natural gas prices have stirred public concern. On one side, some local governments have quietly increased prices, while on the other, government departments have publicly addressed these rumors. The recent price hikes in cities like Changchun, Jilin, and Handan, Hebei, seem to support the speculation that natural gas prices will surge.
Professor Liu Cheng from the School of Economics and Management at Beijing University of Science and Technology told reporters that since natural gas is a commodity, its price should follow market trends. Establishing a price linkage mechanism between upstream and downstream sectors is essential. However, the public remains skeptical about the current opaque pricing adjustments. The controversy sparked by recent price increases highlights the flaws in the existing system, and creating a transparent and open pricing mechanism has become a top priority.
Some question whether the price increase is driven by profit motives. A recent media report revealed that most urban gas companies are not operating at a loss but instead make substantial profits, while imported gas sources and long-distance pipelines often operate at a loss or barely survive. In Beijing, the capital city with the largest natural gas consumption, four major gas companies serve the population, with Beijing Gas Group supplying around 95% of the city's needs.
Beijing Gas Group reported purchasing 8.41 billion cubic meters of natural gas in 2012, selling 7.94 billion cubic meters, representing a 22.6% and 22.8% increase respectively. At a sales price of 2.28 yuan per cubic meter, the company generated 17.11 billion yuan in revenue, a 24.1% year-on-year growth, and achieved a profit of 2.13 billion yuan, up 13.3%.
A retired resident, Aunt Cao, shared her family’s gas bills from 2006 to 2013, showing a gradual increase in prices. Before 2006, the rate was 1.9 yuan per cubic meter, rising to 2.05 yuan after 2007, and reaching 2.28 yuan by the end of 2012. Over this period, the price increased by 0.38 yuan, a 20% rise.
Industry insiders noted that as prices rise, consumers must bear the burden. If people’s purchasing power is weak, even small increases can be difficult to manage. The ongoing rumors about improving the price linkage mechanism and implementing gas price hikes are seen as signals for broader natural gas price reforms.
Over the past few years, domestic natural gas prices have experienced an inversion, prompting discussions on new pricing models. Analysts suggest that with China's rapidly growing demand for natural gas, ensuring supply requires rationalizing the current pricing mechanism. Behind these rumors lies the push to introduce a more market-driven pricing system.
Since winter 2012, many cities have begun adjusting residential gas prices. Cities such as Beijing, Changsha, and Xuzhou have gradually implemented price changes. Policies like the "Natural Gas Utilization Policy" and the "Twelfth Five-Year Plan for Natural Gas Development" have clearly outlined natural gas price reform as a key goal during the 12th Five-Year Plan.
In 2013, cities in Jiangsu and Zhejiang also held hearings on gas price adjustments. Analysts believe that the lag in the linkage between upstream and downstream gas prices has led to calls for reasonable price hikes. With increasing imports and growing demand, it is urgent to reform the pricing mechanism.
Currently, the natural gas industry is dominated by state-owned enterprises. Without breaking the monopoly and opening up entry barriers, true market competition will be hard to achieve. Ultimately, the cost of gas prices falls on end consumers.
According to Zhou Cuiping, a gas analyst at Business Club, China's natural gas price reform is slowly progressing. She expects the trial reforms to expand over the next three years, with better alignment between natural gas prices and alternative energy sources, and a smoother downstream price linkage mechanism.
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