China to Reform Gas Prices Gradually to Boost Use, Zhou Says

China will reform its natural-gas pricing mechanism gradually to ensure the fuel, which pollutes less than coal, remains affordable as the government encourages its use, the country’s biggest energy company said.

“Promoting the use of gas is a national strategy, which requires appropriate pricing of the resource,” said Zhou Jiping, president of state-owned PetroChina Co. (857), the world’s third-largest company by market value. The government is studying the possibility of extending the trial of a new pricing method to cities beyond those in two southern provinces, he told reporters at the World Gas Conference in Kuala Lumpur today.

Beijing-based PetroChina is losing money on sales of gas imported from Turkmenistan via the nation’s only cross-border gas pipeline, as the government caps domestic prices of the fuel to curb inflation. An oil-linked pricing mechanism was introduced in Guangdong and Guangxi provinces from December on a trial basis.

China’s gas consumption will rise 8 percent annually to 350 billion cubic meters by 2020 and to 550 billion cubic meters by 2030, Zhou said in a speech at the conference. China National Petroleum Corp., PetroChina’s parent, expects to produce 120 billion cubic meters of gas domestically in 2015 and 150 billion cubic meters in 2020, he said.

The country is also planning two new gas pipelines to transport the fuel from its resource-rich provinces in the west to commercial centers in the east, according to Zhou, who is also the president of the parent company.

Shale Reserves

China, estimated to hold the world’s biggest shale-gas resource, has 25.1 trillion cubic meters of recoverable reserves, Zhou said. PetroChina recently drilled shale-gas wells in Sichuan, which showed good prospects, he said.

The country also holds 32 trillion cubic meters of conventional gas and 12 trillion cubic meters of tight gas, according to the PetroChina official.

China’s shale-gas reserves have “great potential along with great challenges,” Zhou said. The nation’s deposits of gas trapped in sedimentary rocks are geologically more complex than those in the U.S., and techniques used in North America can’t be copied directly, he said.

China is seeking to emulate the U.S., where a shale boom made it the world’s biggest gas producer and upended global energy markets. The U.S. pumped 96 billion cubic meters in 2009, overtaking Russia as the largest gas provider. Output surged to 142 billion cubic meters in 2010, causing prices to slump.

“We need to develop our own applicable technology and approach,” Zhou said.

To contact the reporter on this story: Winnie Zhu in Kuala Lumpur at wzhu4@bloomberg.net

To contact the editors responsible for this story: Amit Prakash at aprakash1@bloomberg.net; Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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