The benchmark 'city gate' price for non-domestic users will be lowered by 0.7 yuan (US$0.1097) per cubic meter from this week, the National Development & Reform Commission (NDRC) announced on its website, according to Reuters. The city gate price is paid by local distributors or gas firms to pipeline operators.
The NDRC agency urged non-residential gas participants to trade on the Shanghai spot exchange in order to achieve "full market transparency" within two to three years. The Shanghai exchange will publish regular information on spot trades, Reuters said.
The agency also said that it will allow a 20% upward 'float' in the price. It gave no downward limit, Reuters said.
Energy expert John Yeap of Pinsent Masons, the law firm behind Out-Law.com said: "Incentivising the use of gas, a cleaner fuel source to coal or oil, is an incremental step towards addressing the nation's huge environmental challenge. However, the key to the challenge is addressing the fuel mix for power generation. Incentivising the use of SOx and NOx scrubbers to limit pollutants discharged from coal plants, for instance, has the ability to make meaningful impact on the environment. Ultimately, reducing the burning of fossil fuels will have to be part of the overall fuel strategy for the country."
SOx and NOx scrubbers reduce sulphur and nitrogen emissions.
Li Yao, chief executive of consultancy SIA Energy told Reuters that the move "should boost demand on the direct, large end users of especially domestic pipeline gas, and also benefit those with integrated value chains such as downstream assets in power plants and city distribution networks".
China's finance and taxation authorities announced in January that consumption tax on oil products would be raised to support counter-pollution initiatives and the new energy sector.