China's natural gas pricing mechanism needs to be adjusted

October 27, 2023

According to the latest forecast of the Ministry of Land and Resources, if the resource reserves can be reasonably developed, China’s natural gas production is expected to reach 200 billion cubic meters in 2020, and the oil production will be about 200 million tons during the same period. Natural gas will be able to share equal importance with oil in energy production. . Moreover, with the import of pipeline natural gas and LNG imports, the total supply of natural gas in the country may reach 300 billion cubic meters, and the natural gas era will come. However, due to the cost-based pricing method currently adopted in China, it will cause market chaos and will inevitably seriously affect the future development of the natural gas industry. China urgently needs to adjust the current natural gas pricing mechanism.
Experts believe that China currently adopts a cost-based pricing method. Because it is not closely related to market-related changes in energy prices and cannot fully reflect alternative energy price levels, the value of natural gas will be underestimated by the market and may send the market an erroneous economic signal. Make false demand for natural gas. At the same time, when the natural gas provider's cost cannot be properly compensated, it will affect the production and supply of natural gas. The effect of these two factors is bound to cause market chaos and seriously affect the development of China's natural gas industry.
According to industry sources, LNG (liquefied natural gas) pricing is entirely based on energy alternatives, linked to alternative energy sources, and priced based on the market value of natural gas rather than cost plus reasonable profit methods. Therefore, the natural gas currently used in the natural gas supply chain in China The pricing mechanism will have a major impact on the introduction of LNG. This is mainly reflected in the following two points:
First of all, since China's natural gas pricing is not priced according to the market value of natural gas, the price of natural gas deviates from its actual value. If a long-term contract is signed to purchase liquefied natural gas at this time, it will cause price inversion and seriously affect the operation of the LNG terminal. Therefore, the current domestic natural gas pricing mechanism will make it difficult for LNG import companies to actively carry out resource introduction work.
Secondly, the current domestic natural gas pricing mechanism cannot adapt to changes in the international natural gas market, making it difficult for natural gas producers as resource providers to grasp appropriate trading opportunities and cause uncertainties in the forecast of natural gas demand, thus destabilizing natural gas consumption. .

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