Peiyang Chemical Equipment Co., Ltd.
Pricing Strategies for LNG Downstream Users
Pricing Strategies for LNG Downstream Users

The LNG project will be signed with downstream users to "pay the bill" contract. The market pricing is aimed at maximizing the enterprise and social benefits, and there are four basic pricing principles: the principle of cost accounting, the principle of resource utilization efficiency, the principle of the price determination of substitution object and the principle of market development orientation.

According to the demand curve of LNG downstream consumption market in the next period of China, LNG consumers can be divided into the following groups: combined cycle power plant users, urban civil gas users, the scale of the urban/industrial park of distributed energy system users, oil refining, petrochemical and other industrial fuel, hydrogen production and chemical raw materials, automotive fuel (LNG/CNG stations) user, cargo tank container transportation of LNG expansion by various net gas users. According to the above four basic pricing principles of LNG, the pricing strategy should be adopted for different LNG consumption users.

1. The users of combined cycle power station

Such users are directly supplied by LNG receiving stations, whose price consists of the price of the gate, the depreciation of the pipeline, the adjustment facility, and the management fee and gross profit. At the beginning of the LNG project put into production, the combined cycle power plant users bear the cif LNG can guarantee the stable consumption according to the "pay the bill" contract, it is large scale and the stable pipeline cost is low, the main alternative to low-cost coal and hydropower. However, such users are not competitive and the price is low, so they should enjoy the lowest possible price and take the LNG terminal as the bottom line.

Because the current heat value of natural gas and coal in China has reached the high point of 2.5 ~ 3.0, it is impossible for China to develop large-scale natural gas generation, therefore, natural gas generation can only make up a large proportion of downstream users in the initial stage of LNG project and play a pioneering role in the market. The LNG project is difficult to recover investment costs if it is simply sold to power users. In addition, the natural gas plant can only be used as the peak power station, which is limited by the power grid load and demand change. With the development of the downstream market of LNG project, the proportion of power generation gas will gradually decrease.

2. The users of urban civil gas

Such users are mainly commercial users such as urban residents, hotels and restaurants. Natural gas is mainly used for cooking and bathing. Its main characteristics: firstly, the city gas company has a certain scale of users, and the consumption of LNG is relatively small, which cannot be the main force in the market development; The second is that users are very fragmented and require the natural gas pipeline to be decompressed and deployed at the same time. Therefore, the investment depreciation and management of the gas companies are relatively high; Third, natural gas is used for low temperature heating, which is low energy and low efficiency; Fourth, in cities that have no network, natural gas is a major alternative to expensive LPG, and users are more affordable. These characteristics determine the price of gas users for urban residents, which is one of the main markets of the early stage of the project and they are the main source of investment recovery.

However, natural gas is the basic living requirement of residents, and the pricing of urban civil gas must consider the affordability of the poor. In order to solve this problem, we can adopt the method of cumulative pricing, which is to ensure that the gas price of the lowest living needs is lower than that of the base amount, and the accumulative price is added. Or give a certain allowance to the low - insured.

3. The users of distributed energy system of city/industrial park

Distributed energy system (DES) is a technology of Combined Cold Heat and Power (CCHP) in a limited area. The integrated energy supply system that provides electricity, steam, hot water and air conditioning to the user while providing power, steam, hot water and air conditioning is provided by the network and cable. Therefore, the general term "cold and thermal power supply, DES/CCHP". The distributed energy has two advantages: after a natural gas power generation of cascade utilization of waste heat, steam and hot water supply users directly, it can make the energy utilization efficiency as high as 70% ~ 90%, and it can reduce power generation costs, and make the economy of LNG greatly increased; The second is that the power generation can be made directly under 10kV voltage, which can avoid the equipment investment of the lifting voltage and remote transmission. It can reduce the power loss and operating expenses and reduce the cost of the terminal power supply, and thus be the most efficient way to use natural gas.

The one which is suitable for popularization and application of the distributed in China cold heat power trigeneration energy system (DES/CCHP) can be divided into two categories: meet the demand of commercial residential buildings in the city can, meet industry and industrial park demand for electricity, steam, hot water and cooling load. These two types of users will be the largest users of natural gas downstream markets. Because of the power supply system that is dominated by the existing cities, compared with the existing electricity, heat (steam) and cold transformation and supply of industrial energy systems respectively, DES/CCHP alternative is electricity or low efficiency of utilization of natural gas or heavy oil, because of its efficient and straight, so it has good economic benefit. In addition, there is a certain scale of DES/CCHP users, direct from the high-pressure trunk pipeline to the natural gas. So the cost of supplying gas is low, which also creates the conditions for selling natural gas at low prices.

DES/CCHP users are the key to the rapid expansion of the natural gas downstream market and the key to the investment of LNG project companies and urban gas companies within a reasonable period of time. In order to develop the market as soon as possible, the gas company should adopt the strategy of "thin profit and profit" and "water raising fish". Giving it the best possible gas price allows the DES/CCHP project to enable investors to recoup their investments for eight to 10 years while making cheap energy available to all users.

4. The users of refinery and petrochemical company

Industrial users such as refinery and petrochemical companies, which use natural gas as the raw material and fuel for hydrogen production, have replaced the relatively high price of light hydrocarbon or heavy oil in the current market. This is conducive to resource conservation, comprehensive utilization and recycling, which is conducive to reducing excessive dependence on international crude oil. Therefore, lower prices should be applied to such users and encourage their large use of natural gas.

5. The users of motor fuel (LNG/CNG gas station)

Such users can replace large amounts of diesel and some gasoline with LNG or CNG, which will improve energy efficiency and improve the environment. Since the price of gasoline and diesel is much higher than that of LNG, such users have a strong ability to bear the price of LNG. However, in accordance with the broad cost pricing principle, the development of LNG vehicles (LNGV) must also take into account that a complete industrial chain is needed to support the development of LNG vehicles. This includes buying LNG engines (or converting CNG engines), loading LNG/CNG fuel tanks, building refueling stations, and investing in truck-tank transport companies. Therefore, when LNG project company or gas company makes the price of LNG fuel, it is necessary to leave reasonable investment recovery and profit space for the tank container transportation company, gas station, automobile modification owners, etc., and the price can not be raised at will.

6. The user of the satellite station that the tanker transport expands

Such users include all users except natural gas combined cycle power stations. Their pricing mechanism is the same as before. However, the investment depreciation and operating expenses of LNG transported to the Railway Station by tanker are different from those of LNG, which are transported through the main pipe network at the terminal station after the evaporation. The depreciation and operating expenses are different. As long as the technical economic analysis is calculated according to the actual situation, the specific price can be determined.

LNG is an important downstream market user of LNG receiving station. At present, China has more liquefied natural gas (LNG) plant, several LNG tanker transportation company, hundreds of LNG goonhilly is running, and they formed the world's largest land LNG tanker transportation market. Within a few hundred kilometers of the coastal areas, LNG tanker is the vanguard of the LNG project expanding market and extending the pipeline network. LNG tanker transport will be a long - term complementary to the pipeline. Therefore, LNG terminal to the tanker transportation company for sale of LNG price, should fully consider the market development factors, appropriate profit to downstream companies, in order to achieve a win-win situation.

This study was supported by the research and development planning project G2000026307 of the national key basic research and development program, and the assistance of the two postgraduate students, Luo jixi and Yang yanli.

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