Analysis of the changes in the scale of natural gas subsidy in China and its decomposition factors

Abstract

This paper applied the price-gap approach to estimate natural gas subsidy in China during 2007–2015 and employed the LMDI method to analyze the influencing factors of the changes in the subsidy scale. The results showed that the Chinese government raised the domestic gas price in contrast to the slump in global gas price in 2009, which accelerated the huge decrease in the natural gas subsidy scale. But the stagnation in price adjustment immediately led to a rebound in natural gas subsidy during 2010–2012. However, the level of natural gas subsidy has declined substantially in the industrial and commercial sectors since the natural gas pricing mechanism reform began in 2013. But the level of residential natural gas subsidy still remained high because the city gate pricing mechanism was not extended to this sector. The pricing mechanism was the most important decomposition factor of changes in the level of natural gas subsidy. The contribution rates of competitive gas price, pricing mechanism, consumption structure and natural gas consumption on decrease in natural gas subsidy scale were 11.08%, 101.21%, −3.15% and −9.14% respectively during 2013–2015. A reasonable and well-implemented pricing mechanism can prevent a rebound in natural gas subsidy. Therefore, the government should seize the current opportunity of sufficient natural gas supply and relatively low gas price to deepen and advance the natural gas pricing mechanism reform.