China Gas: Pipeline company reform has potential to stimulate gas demand but recent price cut unlikely to have any impact

China’s Five Year Plan envisages increased gas use at the expense of coal with the aim of improving the physical environment in the country.  But increased gas use depends both on government policy and on pricing.  Gas price reform has been a slow-moving work in progress.  Even the recent – very modest – cut in gas prices – will have no effect on Chinese gas demand.  The proposed creation of a national pipeline company, however – independent of the Chinese majors – creates the opportunity to increase competition in the end-user space, reduce prices and stimulate gas demand.  There are a number of serious challenges ahead – particularly from the NOCs, but we should get a good indication of the likelihood of progress later this year as our expectation is that government announcements about the proposed new company should take place later this year.

By: Stephen O'Sullivan