Business

Editor: Bruce Meng
18 Nov 2008 10:39:05 GMT

BEIJING, Nov 18 – China should revise domestic fuel prices as crude hovers in the mid-$50/barrel range, analysts said on Tuesday at an International Energy Agency (IEA) conference, but they were divided on support for a fully market-set pricing system.

Market proponents have been urging the world’s number-two oil consumer to float its energy prices to international rates to better reflect long-term demand growth and supply limits.

China has also said many times it would reform energy pricing policies to cushion big swings in economic activity and promote energy efficiency, the latest pledge having been made in a cabinet meeting. [ID:nSEO156316]

But the country’s economic development could be jeopardised if Beijing completely liberalised energy pricing and global prices eventually rebounded, said Han Wenke, head of the Energy Research Institute of the National Development and Reform Commission (NDRC), China’s top economic planning body.

“We need to align the interests of the country, the industry and consumers now,” he said when asked whether it was the right time for China to cut domestic pump prices.

“If you want (prices) to fully reflect the true supply and demand situation, it’s not the time… China is a developing country. If all prices are the same as international prices, how can we develop?” Han said.

But IEA chief Nobuo Tanaka, who was in Beijing to present the 2008 World Energy Outlook, said the timing is perfect for the Chinese government to remove fuel subsidies, which he said it should do in order to foster efficient and sustainable energy use.

“With prices coming down, it is an ideal moment to phase out subsidies. Politically it is easy,” he told Reuters.

China, which the IEA predicts will drive 43 percent of global oil demand growth from 2007-2030, plays a key role in a sector that may see consumption outpacing supply in the future should investments on production capacity be curtailed due to the current financial crisis, Tanaka said.

For details of IEA’s 2008 outlook: [ID:nLC206922]

While China and other developing giants including India and Brazil recognise the importance of energy conservation, massive economic needs mean these nations will guzzle oil anyway, said Liu Keyu, deputy president of CNPC Research Institute of Economics and Technology.

“The current slowdown in demand is just a temporary adjustment. The global supply and demand balance has not and will not change,” he said.

“We don’t have the conditions to repeat the dependency on cheap fuel for industrialisation as did the developed countries, we are also devoted to developing renewable energy, but our oil consumption will unavoidably grow rapidly,” Liu said.

The IEA’s Tanaka said China should also look at sparing some resources from its hefty stimulus plan for developing nuclear and renewable energy projects such as hydro power.

The 4 trillion yuan ($586 billion) package would target mainly the construction of airports, railways and highways across the country, as well as public health, education and culture, the official Xinhua agency had said. [ID:nPEK87386]

“Stimulating domestic demand is important… but you can identify which projects are more sustainable. If you are using the money, why not in a sustainable project? That is my strong plea for the Chinese government,” Tanaka said.