China raises gas prices 25%, cuts gasoline rates

 BEIJING - China has increased the wholesale prices of natural gas by around 25 percent and reduced retail rates of refined oil products by about 3 percent effective Tuesday, to curb demand and better allocate resources.
Natural gas benchmark prices will go up by 230 yuan to 1,155 yuan per thousand cubic meters, the National Development and Reform Commission (NDRC) said on Monday.

"It is necessary to make the adjustment, as the country's natural gas price is significantly lower than that of other fuels," said Cao Changqing, head of NDRC's pricing department.

In China, natural gas is priced at a quarter of the price of the liquefied petroleum gas with equal energy value, while in the international market it is priced at about 60 percent of that of crude oil with the same energy value, according to Cao.

Due to rapid demand and an improper pricing mechanism, China's natural gas shortage reached 3 billion cubic meters in 2008 and 9 billion cubic meters in 2009, and natural gas imports are expected to exceed 15 billion cubic meter this year, Cao said.

China has long been preparing to reform its natural gas pricing mechanism, but surging consumer inflation this year, however, deterred the plan.

Cao said it is the right time to make some adjustments in natural gas prices, as the economy is rebounding and general prices can be maintained at a relatively low level.

Meanwhile, the NDRC also cut gasoline and diesel prices by 230 yuan per ton and 220 yuan per ton respectively, the second adjustment in refined oil prices this year. The government in April raised gasoline and diesel prices by around 4 percent.

"This is in line with the international trend, as oil prices on the international market have been falling continuously since early May on concerns over the European debt crisis," Cao said.

Analysts said the price adjustments are in line with China's ongoing efforts to improve the energy-pricing system.

"The current price reduction complies with the 22-day formula that China has adopted for its oil pricing system," said Zhou Dadi, an analyst with the Energy Research Institute under the NDRC.

The country adopted a new oil pricing system last year. Under the mechanism domestic refined oil prices are adjusted when the moving average of a basket of international crude (Brent, Dubai and Cinta) changes over 4 percent over a period of 22 working days.