Moody's: Chinese national oil companies feel limited impact from natural gas price adjustment

Moody's Investors Service says China's three national oil companies (NOCs) will feel little negative impact from the recent wholesale price adjustment for gas, because the price reduction will only moderately offset the price increase implemented seven months earlier. This adjustment will also support the growth of China's natural gas market by balancing the competing interests of upstream producers and end-users.

Moody's analysis is contained in its just-published report "Natural Gas Price Adjustment Has Limited Impact on Chinese NOCs and Supports Gas Market Growth," authored by Kai Hu, a Moody's Vice President.

China's National Development and Reform Commission (NDRC) will adjust the wholesale price of natural gas for non-residential users starting 1 April 2015, which will decrease the average gas price for non-residential users by 3% of current weighted average price, or per cubic meter.

"Although this will result in around RMB13 billion less in 2015 yearly revenue for the NOCs than if there were no such adjustment, the negative impact is limited as the adjustment only slightly offsets the price increase implemented in September 2014," says Kai Hu.

"In addition, the price adjustment will support the growth of the natural gas sector," adds Hu.

The Chinese government aims to increase natural gas consumption to 10% of primary energy resources by 2020, from its current 5%-6% today.

"Meeting that target means a fine balancing of the interests of upstream producers and end-users, as artificially low prices discourage upstream suppliers from gas production and sourcing, while inflated gas prices mute demand," says Hu.

China's NOCs, China National Petroleum Corporation (CNPC, Aa3 stable), China Petrochemical Corporation (Sinopec, Aa3 stable) and China National Offshore Oil Corporation (CNOOC, Aa3 stable), dominate the country's upstream supply of natural gas through their domestic production and imports.