Far East Energy Welcomes China Gas Price Reforms

Far East Energy Corporation, the coal bed methane company operating the Shouyang PSC in Shanxi Province of China has welcomed the long-awaited reforms to China's gas pricing structure.

The National Development and Reform Commission (NDRC) announced an average 15% hike in gas prices, effective July 10, 2013. “These increases will be borne by the industrial and other sectors and will flow to upstream producers such as Far East, with analysts projecting that this will translate into an increase of approximately 25% at the wellhead,” the company said.

Company’s CEO Mike McElwrath said, “Far East is currently receiving $6.50/Mscf for gas sales, from our Shouyang Block for the first 10.6 MMscf produced (inclusive of subsidies).  We expect volumes going forward to be sold at increasingly higher prices as the new pricing formula takes effect.”

The new price regime should provide a clear incentive for increased exploration and production of China’s domestic gas resources, as opposed to the more expensive options of importing LNG and/or piping gas into China, Far East Energy said.

“CBM prices are not regulated by the NDRC and are subject to independent negotiation between producers and buyers.  However, recent history has shown that CBM price levels reflect national trends and management expects that future gas sales contracts would be made at prices above current realizations,” the company said.