The Effect of China’s Natural Gas Pricing Reform

Abstract

ABSTRACTIn recent years, the rapid increase in natural gas consumption and huge dependency on foreign gas have forced China to speed up the process of natural gas pricing reform. The price-gap approach is applied to estimate China’s natural gas subsidies, and the results indicate that China's natural gas subsidies increased from CNY 93.341 billion in 2010 to CNY 188.537 billion in 2012. We also apply the input-output model and find that a natural gas price increase of 10–15 percent has less effect on various price indexes than does complete removal of subsidies. Currently, China’s natural gas accounts for a relatively small proportion of the country’s primary energy consumption, and thus gas pricing reform will not have a significant negative effect on the macroeconomy. The government needs to implement fiscal policies such as direct subsidies, tiered pricing for natural gas, and city-gate price discounts to relatively underdeveloped provinces to ensure the smooth implementation of reform.