In response to market hearsay that the consumption tax levied on fuel oil would be cut next year, the National Development and Reform Commission was cited as saying that it is researching the issue and has not concluded on a tax cut, according to C1 Energy.

The market hearsay follows an appeal made by gas turbine power plants
in Guangdong province, the most energy-hungry province, to slash the
consumption tax levied on fuel oil and mitigate their losses.

Most gas turbine power plants in southeastern China currently rely on
fuel oil as feedstock because of the short supply of natural gas.

C1 Energy calculated that an average power plant in Shenzhen could
profit as long as the fuel oil price stays below 3,600 yuan per metric
ton (tonne). But the fuel oil price has already climbed to 4,050 yuan
per tonne.

A power plant expert in Dongguan city of Guangdong province said that
after subsidization they would profit on fuel oil prices below 4,300
yuan per tonne. But he worries that next year’s fuel oil prices may
surpass that given that they have been spiraling upward.

On January 1 China raised its consumption tax on fuel oil eight-fold to
0.8 yuan per liter hoping to introduce cleaner energy usage.

Most market watchers believe that it is impossible for the commission
to cut the tax because those gas turbine power plants should feed on
natural gas rather than fuel oil. Further, gas demand would likely be
satisfied in 2010 when CNOOC imports LNG from Qatar and PetroChina
supplies Guangdong with gas via its second West-to-East pipeline in
2012.

Source: China Mining

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