China's National Development and Reform Commission has submitted a blueprint for the natural gas sector under the 12th Five Year Plan to the State Council for approval, an official with the NDRC's research institute told Platts Wednesday.

"The plan should have already been submitted and will be made public once it is approved," said the official who declined to be named, adding that the plan will set out natural gas supply and demand forecasts over 2011 to 2015.

Beijing said last year that it was hoping to double the share of natural gas in its overall energy mix to 8% by 2015, from nearly 4% at the end of the 11th Five-Year Plan in 2010.

The plan could also indicate the timetable for the nationwide rollout of a new gas pricing mechanism, which the government implemented on a trial basis in the southern Guangdong and Guangxi provinces in December last year, the official said.

There is pressure from state companies on the government to reform domestic gas prices to stimulate more domestic production, and make LNG and pipeline imports more economically viable as demand surges.

The new system currently being tested in the two provinces uses a basket of high sulfur fuel oil and LPG prices traded in Shanghai in a 60:40 ratio, calculating natural gas prices in both provinces based on 90% of the market price of the basket. In the past, the price was set using a cost-plus method taking into account pipeline and other tariffs.

However, under the new mechanism, prices are now capped at Yuan 2.74 (43 cents)/cubic meter in Guangdong and Yuan 2.57/cu m in Guangxi -- much lower than the cost of imported gas. According to customs data, China's LNG imports from Qatar in March averaged 70 cents/cu m. Guangdong receives LNG from Qatar while Guangxi gets Turkmenistan gas via the Second West-East pipeline.

Analysts say Shanghai will be the key test of whether reforms can be pushed through to other parts of the country. Gas pricing reform in Shanghai would raise city gate gas prices by 50% to Yuan 3.60/cu m, Bernstein Research analysts said in a report published Wednesday.

Bernstein expects the reforms to be introduced across the country over two years as a full implementation now result in a sudden jump in costs for some industries.

If full reforms are rolled out now, wellhead gas prices for state-owned PetroChina, Sinopec and China National Offshore Oil Corp. would more than double from current levels, while end-user prices across China would double to up to Yuan 5/cu m, according to Bernstein.

"Our expectation is that city gate gas prices in Shanghai will adjust upwards towards the pilot price of Yuan 2.75/ cu m later this year," Bernstein said. The Shanghai price would then form the basis of a netback price for other cities in China by 2014, assuming the government implements a two-year pilot project, Bernstein added.

China's total apparent demand for gas -- taking into account net imports and domestic production -- was 39 billion cu m (15.1 Bcf/d) in the first quarter this year, up 19.7% year on year, the NDRC said April 19. Domestic production during the the period rose 7.3% to 28.8 billion cu m (11.2 Bcf/d), it said.