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Last year China became the world`s largest user of natural gas. Now. the country is upping the ante: it wants to begin to set its own price.
That`s because importers charged prices that were affected by factors irrelevant to China`s balancing of supply and demand- from Global conditions to conflicts in the Middle East.
As before for coal. silver. and iron ore. manufacturers. dealers. and financial markets in the top commodity market are searching for values that they say better match Chinese fundamentals. and in their own currency.
The quest for an internationally recognized Chinese natural gas rate. including a potential contract for futures. fits the larger pattern of the world`s largest buyer of products having a greater say in how the raw materials it purchases are handled. market analysts said.
`Foreign firms have taken advantage of this.` said Xu Tong. a deputy general manager of Beijing Gas Group Co. supplier. in an interview. Domestic indices would `significantly lower rates.`
China is also opening its commodity futures markets to international investors in an effort to expand its currency`s value. the yuan.
A Shanghai exchange introduced an oil futures contract for overseas investors in March 2018. while Dalian followed by opening up its iron ore trade two months later.
When President Xi Jinping`s government pushed industrial and residential consumers away from coal. China`s market for natural gas has boomed in recent years. the latest data showed.
Nevertheless. domestic gas production has not kept pace with demand. Imports. meanwhile. rose last year by approximately 32 million.
Two different pricing mechanisms surround domestic gas sales: a government-set rate of pipeline supply that is subject to some agreement between buyers and sellers. and the unregulated market for liquefied natural gas delivered on trucks.
And for exports. China often charges prices based on either international oil or gas levels established in the U.S. or Europe in U.S. dollars.
The arrangement could lead to losses at lower domestic prices for Chinese companies reselling overseas oil. Since 2011. when it started reporting the figures regularly. PetroChina Co.. the top oil and gas supplier. has chalked up $34 billion in losses.
At a time when the fuel was competing with petroleum used for home heating and power generation. LNG contracts first became tied to oil prices.
More importantly. oil provided transparent and liquid price benchmarks that enabled hedging buyers and sellers to secure bank financing. But as the international gas market deepens. costs have continued to decouple.
`Oil can not reflect gas fundamentals- they are two separate products.` said Wu Yifeng. deputy general manager of natural gas at the international unit of PetroChina. in an interview in Beijing this week.
