For a country that has been steering its economic development in five-year plans since the 1950s, China has a strange blind spot when it comes to natural gas.
When Beijing's strategists saw a wave of industrialization on the way in the 2000s, they spent lavishly on mines, ports and metal-processing facilities to feed a hungry domestic economy. Yet the country has failed to invest in gas-storage and import-export capacity to ease a sector plagued by frequent gluts in summer and shortages in winter. That's despite plans to halt coal-fired power plants along with 500 million metric tons of mine production,
PetroChina, the country's biggest oil and gas producer, is planning to raise gas prices for industrial users by between 10 percent and 20 percent, Bloomberg's Aibing Guo reported Thursday. The price rationing will help tamp demand and take the edge off an expected shortfall of supply as domestic heating consumption ramps up with lower winter temperatures. But it's no way to run the world's second-biggest economy.
As Gadfly has argued before, China's formulaic (not to mention archaic) way of pricing natural gas is distorting the market, making gas artificially expensive and complicating the transition from coal-fired generation.
Even after the dramatic recovery in U.S. natural gas prices over the past year, market prices in China are still almost three times the American benchmark and about 55 percent more than those in Japan.
As with any other commodity, high prices have ensured weaker demand, with pipeline imports dropping in August to their lowest level since January 2012 and consumption as a whole drifting sideways over the past few years.
This has generally been pretty good news for PetroChina, whose natural gas unit is its best-performing in terms of operating margin. But it's a bad deal for household consumers, whose energy bills end up higher than they otherwise would be; for industrial users, which face sharp price fluctuations between summer and winter; for urban residents, who face choking air pollution from coal-powered stations that should be replaced by gas; and for the global climate, which needs a transition towards less-hazardous forms of fossil fuels, and ultimately to renewables.
There's not enough evidence that China is addressing this problem. At the end of 2015 its LNG regasification capacity was 40 million tons a year, less than Spain and barely more than the U.K. After three plants currently under construction are completed it will have no others planned, according to Global LNG Info. India and Italy, by contrast, each have one underway with three more to come, and even Albania is planning two more.
Adding more of those, plus storage facilities to smooth seasonal demand and further pipelines to tap Russia's gasfields, may harm PetroChina's most profitable unit. But China, and the world, will benefit.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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