BEIJING/NEW DELHI: Moves by China and India to raise local gas prices will pave the way for increased imports of liquefied natural gas (LNG), as the two nations try to ensure they can meet rapidly increasing demand for the fuel.
Gas prices in both countries have been kept artificially low at levels well below globally traded LNG costs, meaning either LNG importers suffer a loss or local LNG users have to pay a big premium to domestic prices.
India last week nearly doubled the price from around $4.20 per million British thermal units (mmBtu) to a pricing formula that will bring prices to around $8.40 per mmBtu from April 1, 2014.
China made a more modest reform, increasing non-residential natural gas prices by 15 percent, but prices will be higher at up to $10-$12 per mmBtu in many coastal provinces.
Chinese and Indian gas demand is expected to soar in the coming decade, driven by growing energy demand and efforts by China in particular to increase the amount of cleaner burning natural gas in its energy mix.
Higher gas prices will make LNG imports more attractive and provide incentives for domestic gas developments.
"It's broadly positive for LNG, as most (Chinese) LNG players are nervous of low (cost) competing gas sources," said Beijing-based senior gas analyst Gavin Thompson of Wood Mackenzie.
"We'll start to see a little more of the China influence in the spot, short-term LNG markets than the past few years."