"To skip details, in general, China’s natural gas price has not been fully reflecting the value of such a high heating and clean energy. Gas price reform is mainly market-oriented, breaking from exclusive government price controls," a person involved in “gas price reform" told China Economic Times.

In April this year, Chinese Premier Wen Jiabao held a videophone conference on energy-saving and emission-reduction, which addressed the urgency to promote timely reform on prices of natural gas, water, heat and other resources.
Speed-up price reform
It is said in the end of April, the State Development and Reform Commission held a "gas price reform seminar" in Chengdu, initiated "price of China gas pipeline distribution", which covered the basis of price formation for gas distribution, the price management system and the price composition.

"In the past, China’s pricing departed from the international market, we have to prepare for establishing China’s energy market if we want to join the international market," the official said.
Most energy experts were disappointed about China's current gas pricing system when they were interviewed by China Economic Times. They argued that the government-controlling price was unable to reflect dynamics of international natural gas price, it was incomparable with the prices of competing fuels, and further it could not reflect the natural gas’s socio-economic advantages such as high heating value, environmental-friendliness and convenience.

It is understood that the prices relation of crude oil, natural gas and power generating coal in China is about 1:0.24:0.17, while it is about 1:0.6:0.20 in the international market.
Chen Min, an energy researcher with SUNTIME futures said in an interview with this newspaper, low domestic gas prices could not inspire mining enterprises, which in return inhibited gas output. However, China's demand for natural gas is growing by 11%-13% on average, and China's external dependence on gas is up to 50%.

According to Wang Zhen, Director of China Research Center for Energy Strategy, domestic natural gas market is now strictly controlled, which is not a sound and rational market. In particular, low prices enable high or even excessive consumption, which undermines the implementation of energy saving and emission reduction. 
Chen Min believes we should appropriately raise domestic gas prices and encourage exploration of natural gas, to balance supply and demand in the domestic natural gas market.
To remove all the obstacles in energy-saving and emission reduction by the "market"

At present, on mainland China natural gas adopts government or government guidance prices. The distribution price is monitored by provincial departments on price regulation, and the degrees of monitor vary greatly. Basically, gas pricing can be summarized as: mainly cost-plus pricing and take market demand into consideration.  To be more specific, pipeline distribution and factory benchmark are priced by the State Development and Reform Commission. While the terminal sales price is formulated by the provincial price departments.
As to the non-market-oriented pricing, Zhang Xiaode, professor of China National School of Administration says he "disagrees at all". He believes that "in the past, the government price was not able to accurately reflect the market, but enable high energy consumption enterprises extensive use of energy. And since these enterprises do not have to worry about energy prices, it is difficult to conduct energy-saving and emission reduction.”

Wang Zhen believes that "a major reason for the obstacles in saving energy and reducing emission lies on the fact that high-energy-consumption and high-pollution enterprises can still make money, and make a lot, so they are not enthusiastic in saving energy and reducing emission." In his view, we have to enable the market as the price lever, so that the enterprises of high energy consumption realize resources are "precious", understand the prices relations of gas with other alternative energy products, and realize the competitiveness of natural gas.

Some industries will “have no gas for production".

It is learned that China's future natural gas pricing will transit from major government price to combination of market-based pricing and government control, and from cost-plus to net-back pricing.
Zhang Xiaode believes with the improvement of gas pricing mechanism, some high energy consumption companies are likely to “have no gas for production". As a result, some industries may adjust substantially; some will be forced to restructure, only to save energy.

Chen Min also says that most natural gas is consumed to produce energy for industrial development and as gas prices increase, some of the previous major consumers of natural gas have to restructure, and for instance, industries using natural gas or oil products as the direct energy source will experience difficulties.