Date
18 January 2017
Numerous local governments are said to be researching measures to help companies cut energy costs. Photo: Reuters
Numerous local governments are said to be researching measures to help companies cut energy costs. Photo: Reuters

Outlook for Chinese gas sector still hazy

As China’s manufacturing firms continue to face mounting difficulties amid slowing demand, excess capacity and rising costs, some local authorities are pitching in to help them lower energy spending.

This is largely the backdrop to recent cuts in gas transmission tariffs by several provinces, including Zhejiang and Guangdong.

Individual gas distributors say the impact so far has been limited.

Although any radical changes in the tariff regime is unlikely, as long as the threat of an economic slowdown remains, it won’t be surprising to see more such cost reduction efforts spearheaded by local governments.

Jiangxi province, for instance is said to be asking gas firms and their industrial customers to directly negotiate to lower gas prices.

Quoting the Economic Information Daily, a JP Morgan research note said that during the past three months, China has started assessing natural gas pipeline transmission costs across the country to lay the foundation for stricter supervision of the industry.

It is hence quite conceivable that the government will try to set certain tariff targets based on a gas operator’s financials, pipeline utilization rate, turnover, construction plans and cost of transport.

Gas operators will still be quite profitable, but their profit margins could be at risk.

On the other hand, lower tariffs could spur stronger demand.

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FL

EJ Insight writer

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