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The mainland's natural gas sector is a tale of two industries: a downstream distribution business where operators are enjoying record profits thanks to rising gas demand and stable margins and an upstream supply trade whose profit has been seriously eroded by losses on contracts for long-term imports.

With Beijing dragging its feet on raising the price of gas, the sustainability of the situation whereby resource producers subsidise consumers is increasingly being questioned.

"While [industry regulator] National Development and Reform Commission (NDRC) tries to encourage gas use in China, the gas [supply] chain is increasingly unstable," wrote analysts at American brokerage Sanford C. Bernstein. "The government may not like it, but either gas prices will need to rise or supply and consumption will slow."

To address worsening air pollution in major cities, Beijing wants to raise gas consumption by an average 16.4 per cent from 2012 levels to 230 billion cubic metres (bcm) by 2015.

If realised, it would raise the contribution of gas to total primary energy consumption to 7.5 per cent in 2015 from 4.6 per cent in 2011.

It would also cut carbon dioxide emissions by 520 million tonnes each year from 2011 to 2015 as less coal would be consumed, according to the 12th five-year plan.

This amounts to 6.1 per cent of the 8.5 billion tonnes of greenhouse gases emitted by the mainland in 2011, according to estimates by the International Energy Agency, an intergovernmental policy adviser to 28 mostly developed nations.

Beijing has not lifted gas prices on a nationwide basis since mid-2010. It had been expected to do so last year but did not.

Gas imports have more than doubled from 17 bcm in 2010 to 36.6 bcm last year, an annual growth rate of 46.7 per cent. Mainland end-user prices remain at least 40 per cent below the usual levels in Asia, which have been closely linked to crude oil prices due to tight supply. Imports are expected to continue to rise rapidly, since state-backed oil and gas firms have signed contracts that will see imports hit 93.5 bcm in 2015, or 40 per cent of consumption, up from 25 per cent last year, according to the NDRC. Read more

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