Analysis of the natural gas demand and subsidy in China: A multi-sectoral perspective

Abstract

Natural gas is the cleanest fossil fuel and also a more desirable energy resource for economic and social development. However, the utilization rate of natural gas in China is relatively low. Since the gas prices in China are controlled by the government, there exist nontrivial problems in the market such as price distortions and cross-subsidies. By applying an autoregressive distributed lag (ARDL) method, this paper analyzes the relationship between gas demand and variables in the residential, industrial and commercial sectors over the period 1985–2017. Furthermore, we use the price-gap method to study the theoretical price subsidy. We conclude that: (1) The residential sector is most sensitive to the change of gas price in both short-term (−0.742) and long-term (−3.050). (2) The urbanization process and income level have significant positive impacts on the demand of each sector. (3) China’s natural gas subsidy amounted to CNY 73 billion in 2017, equivalent to 0.09% of GDP in that year. And due to heterogeneous demand among sectors, the residential sector receives the largest subsidy. The study provides constructive suggestions to enhance the development of China’s natural gas industry and serves as a reference for the formulation of relevant policies.