OREANDA-NEWS. January 16, 2015. China’s gas price reforms are likely to continue in 2015 as slowing demand growth gives policymakers more room to liberalise the pricing system. As a result, expectations are high that Beijing will cut gas tariffs this year in line with falling oil prices.

"We definitely see a possibility that gas prices are going to get cut, given the fall in oil prices. The incremental gas price… will definitely get moved down," Bernstein Research analyst Neil Beveridge told.

"Expect the government to bring down gas prices eventually," Tony Regan, principal consultant at Tri-Zen International, told Interfax.

China’s reforms have so far increased domestic gas prices in an effort to bring them in line with the cost of imports. The National Development and Reform Commission (NDRC) split the gas supply into base and incremental volumes in mid-2013, linking the latter to global oil prices, which have crashed in the past six months.

Chinese gas consumption growth eased in 2014 and is on course to have expanded by single digits for the first year since 2007, as higher prices and a stuttering economy have dragged down domestic demand.

Usage in the first 11 months of 2014 grew by 7.4% to 159 billion cubic metres, compared with 12.3% growth during the same period in 2012 and 2013, according to figures from the NDRC.

"Without any reduction in price, [it could] definitely be another slower year for gas demand growth in China. If they do cut, that will help stimulate demand," said Beveridge.

A price cut would help lift consumption somewhat, but lower oil prices could also have an impact at the margins, said Beveridge. Fuel oil and LPG are already cheaper than gas in some areas, such as the key market of Guangdong province.

Beijing may be waiting for more clarity over the direction of oil prices before tweaking tariffs. "We will see a reduction, but I don’t think it is going to be particularly large as most parties expect oil prices to move up again," said Regan. "Perhaps there will be a 10% reduction and then they will wait and see what happens to oil."