mechanism for crude oil and oil products continuously improves and China’s economy grows,
affordability for people and businesses has significantly improved, and oil product price
adjustments are no longer a sensitive issue. The
correct conditions for market-oriented oil product
pricing now exist. It is suggested that domestic oil
product pricing should be fully deregulated by
2020, and that supply and demand should play the
decisive role in pricing. In addition, the regulation
of price, oil quality and tax revenue should be
strengthened, and the anti-monopoly law
enforcement system improved, thus preventing
monopoly pricing and maintaining a fair and
orderly market.
China has adopted the netback pricing
approach to administer city-gate benchmark prices across the country, reformed gas transmission
and distribution pricing, and unified residential
and non-residential gas prices, laying a good
foundation for a gas pricing mechanism where
price is determined by market competition. It is
suggested that market-oriented reform should
progress steadily in stages and that the principles
of “pilot implementation followed by extensive
deployment”, “incremental capacity increases”
and “deregulating while rationalising the industry” should be followed, in order to deliver the
goal of open, fair, competitive and orderly
market-oriented gas pricing reform.
In the short term: first, the pricing system
should be improved. After unifying the residential and non-residential benchmark city-gate prices, all provincial pricing authorities should
improve the measures for administering residential tiered gas pricing. This will allow them to
define the consumption volume and price level of
each tier, and establish an upstream and downstream linked price mechanism. Second, pricing
policies like interruptible gas prices, peak and
off-peak prices and peak-shaving prices should
be introduced as soon as possible. To ensure
stable gas supply, especially in winter in north
China, an interruptible gas price should be set to
increase the number of interruptible users and
offset the lack of gas storage facilities. China
should guide construction of gas storage facilities
by defining peak and off-peak prices for different
gas-consuming areas and times and encourage
users to adopt peak-shaving. The requirements
for establishing a gas storage peak-shaving
ancillary service market, as stated in the Opinions on Accelerating Gas Storage Facility Construction and Improving the Gas Storage
Peak-Shaving Ancillary Service Market, which
were issued in April 2018, should be implemented. Purchase and sale prices by gas storage
facilities should be determined by market competition, and the cost of constructing gas storage
facilities owned by city gas companies should be
lowered. Third, modification of metering and
billing methods should be accelerated.
Volume-based billing should be replaced by
calorific value. This would help solve the difficulty of feeding natural gas of different quality
from different sources into pipelines and of
opening infrastructure to third-party access, and
it would align with the international gas trading
system. Measures to prevent illegal billing
behaviour should be improved in terms of technology and management. Fourth, China should
explore how to set up pilot projects to deregulate
end-user gas prices. After summarising the lessons learned from Fujian’s city-gate price
deregulation pilot, additional pilots to deregulate
end-user gas prices should be started in provinces
like Sichuan, Chongqing and Jiangsu to facilitate
later national deregulation of end-user gas prices.
In the medium to long term, once upstream
operators are diversified, third-party access to
infrastructure has been achieved, and prices at
gas exchanges reflect supply and demand, China
should stop controlling city-gate prices and
deregulate gas source and end-user prices,
allowing them to be determined by supply and
demand. The pricing authority should only regulate the transmission costs and tariffs of
inter-provincial long-distance pipelines, branch
pipelines, intra-provincial pipelines and distribution pipelines under natural monopoly, thus
achieving the goal of fair, competitive and
orderly gas price reform.
The introduction of gas trading markets
should be accelerated. In the short and medium
terms, the Shanghai Petroleum & Gas Exchange,
Chongqing Petroleum & Gas Exchange and
470
S. Yaodong and A. Gillespie
affordability for people and businesses has significantly improved, and oil product price
adjustments are no longer a sensitive issue. The
correct conditions for market-oriented oil product
pricing now exist. It is suggested that domestic oil
product pricing should be fully deregulated by
2020, and that supply and demand should play the
decisive role in pricing. In addition, the regulation
of price, oil quality and tax revenue should be
strengthened, and the anti-monopoly law
enforcement system improved, thus preventing
monopoly pricing and maintaining a fair and
orderly market.
China has adopted the netback pricing
approach to administer city-gate benchmark prices across the country, reformed gas transmission
and distribution pricing, and unified residential
and non-residential gas prices, laying a good
foundation for a gas pricing mechanism where
price is determined by market competition. It is
suggested that market-oriented reform should
progress steadily in stages and that the principles
of “pilot implementation followed by extensive
deployment”, “incremental capacity increases”
and “deregulating while rationalising the industry” should be followed, in order to deliver the
goal of open, fair, competitive and orderly
market-oriented gas pricing reform.
In the short term: first, the pricing system
should be improved. After unifying the residential and non-residential benchmark city-gate prices, all provincial pricing authorities should
improve the measures for administering residential tiered gas pricing. This will allow them to
define the consumption volume and price level of
each tier, and establish an upstream and downstream linked price mechanism. Second, pricing
policies like interruptible gas prices, peak and
off-peak prices and peak-shaving prices should
be introduced as soon as possible. To ensure
stable gas supply, especially in winter in north
China, an interruptible gas price should be set to
increase the number of interruptible users and
offset the lack of gas storage facilities. China
should guide construction of gas storage facilities
by defining peak and off-peak prices for different
gas-consuming areas and times and encourage
users to adopt peak-shaving. The requirements
for establishing a gas storage peak-shaving
ancillary service market, as stated in the Opinions on Accelerating Gas Storage Facility Construction and Improving the Gas Storage
Peak-Shaving Ancillary Service Market, which
were issued in April 2018, should be implemented. Purchase and sale prices by gas storage
facilities should be determined by market competition, and the cost of constructing gas storage
facilities owned by city gas companies should be
lowered. Third, modification of metering and
billing methods should be accelerated.
Volume-based billing should be replaced by
calorific value. This would help solve the difficulty of feeding natural gas of different quality
from different sources into pipelines and of
opening infrastructure to third-party access, and
it would align with the international gas trading
system. Measures to prevent illegal billing
behaviour should be improved in terms of technology and management. Fourth, China should
explore how to set up pilot projects to deregulate
end-user gas prices. After summarising the lessons learned from Fujian’s city-gate price
deregulation pilot, additional pilots to deregulate
end-user gas prices should be started in provinces
like Sichuan, Chongqing and Jiangsu to facilitate
later national deregulation of end-user gas prices.
In the medium to long term, once upstream
operators are diversified, third-party access to
infrastructure has been achieved, and prices at
gas exchanges reflect supply and demand, China
should stop controlling city-gate prices and
deregulate gas source and end-user prices,
allowing them to be determined by supply and
demand. The pricing authority should only regulate the transmission costs and tariffs of
inter-provincial long-distance pipelines, branch
pipelines, intra-provincial pipelines and distribution pipelines under natural monopoly, thus
achieving the goal of fair, competitive and
orderly gas price reform.
The introduction of gas trading markets
should be accelerated. In the short and medium
terms, the Shanghai Petroleum & Gas Exchange,
Chongqing Petroleum & Gas Exchange and
470
S. Yaodong and A. Gillespie