Good news for city-gas operators in China! They’re finally set to see some sunshine after a prolonged period of losses. A new policy reform is about to turn the tables for them, allowing them to raise the stakes and price their residential gas sales above costs. No longer will they have to bear the brunt of selling household gas at a loss, a weary routine that has been grinding them down for ages.
What’s the scoop? Well, the proposed scheme will give the green light for city-gas prices to get a bi-annual adjustment, keeping in step with the costs of gas procurement. Such a game-changer is expected to pour a river of revenue into the coffers of giants like ENN Energy Holdings, China Gas Holdings, and China Resources Gas. And, you bet, these utility officials are all smiles!
And there’s more! Some cities might see household tariffs leap up to 20% higher. This should give the hard-pressed distributors a sigh of relief, particularly after a tough year. Remember when China’s gas usage took a hit for the first time in 20 years because of the COVID-crunched economy and sky-high global liquefied natural gas prices? Those days might be over!
Local gas suppliers such as Shanghai Gas, Chongqing Gas, and Changchun Gas have had a rough ride. Profits have plummeted, even diving into losses in 2022, due to an inability to pass on costs to a sector gobbling up over 20% of China’s gas consumption. However, with the new market-based pricing system in place, they can finally get their heads above water. Even those expanding into global gas trading, like ENN and China Gas, might have their eyes lighting up at the prospect of importing LNG.
According to Tan Yuwei, the general manager of capital management at China Gas Holdings, this policy is the long-awaited shot in the arm for the entire gas distribution sector, with the hope of restoring profitability. The company, a privately controlled juggernaut and one of China’s largest gas distributors, has about 36% of its gas sales coming from residential customers. It is positively rubbing its hands together in anticipation of a hefty initial price hike, which it reckons will generate a juicy gross margin of 3.2 billion yuan.
Now, it’s not all rosy. Shares for listed gas utility companies did pick up a bit after the policy announcement but are still feeling the heat due to weak industrial demand and a shaky economy. And let’s not forget, the price hikes are being rolled out at a slow pace to ease the impact on poorer families, with local authorities deciding on the timing. Also, there’s talk about subsidies for low-income households, so they’re not left out in the cold.
It’s also worth noting that Beijing has had a firm grip on household prices to sidestep a consumer backlash, even as it liberalized natural gas prices for industrial and commercial customers. That left some households, especially in rural areas in northern Hebei province, high and dry during the 2022/2023 winter as distributors cut back supplies due to skyrocketing costs. The new policy, however, promises to narrow the gap between industrial users who are forking out higher tariffs and residential users enjoying lower prices. It’s seen as a way to balance the fuel costs and might even drive increased purchases from the global market.
In the words of Yi Cui, an analyst with Rystad Energy, this policy overhaul is likely to result in “more reasonable downstream gas prices in China,” encouraging city gas utilities to bolster their purchases from upstream importers. So, fingers crossed, China’s city-gas operators might be looking at brighter days ahead!
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