Trends in the natural gas pricing mechanism reform in China: a perspective of dependency between China and the US natural gas markets

Abstract

Establishing a natural gas market pricing mechanism is crucial to Chinese market reforms. This paper explores the achievements of pricing mechanism reform since 2013 and examines the current market trends. We used copula function to analyse the relationship between liquid natural gas arrival price in Guangzhou and the Henry Hub natural gas spot price in the USA from 2013-2017. The correlations between the natural gas market prices increased from 2013-2015, with rank correlation coefficient reaching a maximum of 0.73 in 2015; Although the correlations were negative from 2016-2017, the decreasing negativity indicates China's market price converged to that of the USA from 2013-2015 and had a temporary separation in 2016 and 2017. It was concluded that while China's natural gas pricing mechanism is becoming more dependent on market mechanisms, it needs to be strengthened by learning from the US natural gas development process.