New Chinese Regulation Of Natural Gas

In China, the government of one province, Habei, is beginning to regulate the natural gas industry more heavily. So far, the natural gas industry for homes has been unregulated and the government has only paid attention to its use in power plants. This shift comes as more consumers, due to their new wealth, are using more power. They are also changing from coal to natural gas, which is more environmentally friendly.

The government is also pushing this sort of regulation to promote natural gas. Primarily because of its cleaner qualities, they are trying to expand it to 10% of their energy consumption from the current 4% level, by 2020. Habei plans to do this by maintaining a lower price. In order to accomplish this, they want to keep gas companies’ returns on equity, or returns on investments, below 8%. The effects of this change could be minor if it does not spread to other areas in China. But if it does spread to urban areas, many companies will have to adapt. According to the article, urban gas distributors have been excellent investments in Hong Kong. With pricing limits set, their prospects and the shape of the growing natural gas industry in China could drastically change.

I find this to be an interesting article because of the role the government has taken. It has good intentions, to protect consumers from high energy prices and to promote a cleaner fuel, but I believe that the results could be more significant. In the end, I think that a higher proportion of China’s power could be created using natural gas as a result of this policy, but some companies will have to make big changes in order to comply with the proposed 8% caps. I am not a fan of government intervention, but in this case, it sounds wise and reasonable.

http://online.wsj.com/article/SB10001424052748703713504575476740661162412.html