What drives the high-risk spillover of benchmark oil prices into China's LNG market?

Abstract

The Russo-Ukrainian conflict and its reverberations on energy markets have heightened concerns regarding energy security. Against the backdrop of fluctuations in international oil prices, oil-gas linkage pricing severely jeopardizes the security of the Chinese gas market. Clarifying the mechanism of high-risk spillover of international oil prices to Chinese LNG is essential for the safe operation of gas. We examine the dynamic spillover effects of Brent, WTI, Dubai crude oil, and Chinese LNG prices using the dynamic connectedness based on TVP-VAR. We innovatively establish the BART-QCA framework to screen the conditions and identify pathways that exacerbate the high-risk spillover of international oil prices to Chinese LNG. The study finds that: (1) Chinese LNG prices are net recipients from the three primary crude oil prices. (2) four pathways exacerbate the high-risk spillover, confirming the situational characteristics of high-risk spillover. (3) The increase in global economic policy uncertainty and China's high external dependence on gas are essential conditions for the high-risk spillover. (4) three pathways mitigate the high-risk spillover. A clear global economic policy situation, reasonable control of public opinion, and the weakening of the US dollar help alleviate high-risk spillover. Accordingly, new policies should achieve scenario-based governance through cross-market and multi-sectoral synergies.