Natural Gas Utilization Center, South China University of Technology, Guangzhou, Guangdong 510640, China

On December 26, 2011, National Development and Reform Commission (NDRC) announced that the present costplus gas pricing system will be replaced by the netback pricing and both Guangdong and Guangxi will be chosen for regional trials. Therefore, this paper first states the significance of this reform and points out that this is not only a great breakthrough in the improvement of gas pricing system but a good start to spur rapid development of natural gas industry in China. In order to keep in line with the upstream gas supply in the national twelfth FiveYear Plan, the downstream gas market needs reforms urgently, especially reforms on the classified gas pricing for different types of gas users and the pricing system based on electricity grids and peak demand response. First, such principles should be followed as cost accounting, resources utilization efficiency, bearing capability decided by the substitute price, and market development as the orientation. Second, the gridbased electricity price of million megawatt DES/CCHP cycling unit should take reference to the method of peak and offpeak pricing on heavy industries, which accounts for 75% of the total electricity consumption all over China. That is, a key parameter of α to balance the benefit between electricity grid and generators is determined by both the Electricity Regulatory Bureau and the Bureau of Commodity Price and is adjusted, according to the change of economic conditions, to be better less than 0.10 Yuan RBM per kWh. In the end, this paper also presents some proposals as follows: (1) The Management and Taxation Regulations of Natural Gas Downstream Market should be promulgated as soon as possible and the business scope of urban gas operators should be restricted within the range of domestic, commercial or smallscale industrial uses, and tariff rates should be classified by different types of downstream gas users from the perspectives of gas supply cost, price bearing capability, and market development need. (2) Taxfree should be permitted for domestic use and the DES/CCHP projects.