Gas Market Reform Research Articles

Government regulation and China's natural gas price distortion: A sectoral perspective

AbstractClarifying the relationship between government regulation and natural gas price distortion is conducive to providing reference for coordinating the relationship between government and market in the process of natural gas market reform. This study examines the impact of government regulation on natural gas price distortions in China, emphasizing sectoral differences in industrial, residential, and commercial sectors. Utilizing production function and equal calorific value methods, the research uncovers significant variations in price distortions across these sectors, with residential gas exhibiting the highest distortion due to prolonged government control and cross‐subsidization. Theoretical analysis, underpinned by the Peltzman model, reveals that price elasticity of end users and political returns significantly influence the extent of distortion. The empirical analysis, employing the Autoregressive Distributed Lag model, demonstrates that government regulations have a pronounced effect on residential gas prices, while marketization moderates distortions, benefiting the industrial sector but exacerbating distortions in the residential sector. The study suggests a strategic reduction in residential subsidies, alignment of commercial prices with international markets, and phased deregulation, particularly in the commercial sector, to stimulate competition and market efficiency. The findings underscore the necessity for a balanced approach in natural gas market reforms, integrating both government regulation and market forces to achieve sustainable energy transition and economic growth.

‘Low-hanging fruit’? Direct supply in China’s natural gas market reform

Abstract This article is one of the first systematic discussions of the legal and regulatory aspects of direct supply in China’s gas market reform. By allowing large users to bypass urban gas companies and negotiate directly with upstream producers, direct supply can propel China’s gas sector towards a higher degree of marketization. Among the range of measures undertaken to reform the gas market, direct supply has received far less attention. Nevertheless, China’s regulators and policymakers at the central and sub-national levels have increasingly acknowledged the key role of direct supply in reducing the cost of gas and fostering more market competition. However, the remaining challenges to the implementation of direct supply are multiple and mainly originate from the extant restraints posed by the Chinese regulatory system governing the gas sector. Against this background, this article argues that the localized implementation of direct supply represents a ‘low-hanging fruit’ in China’s gas market reform.

China's textbook approach to regulatory reform of the natural gas market

Natural gas, as a transition fuel, is considered essential for China's decarbonization and local air protection policy, yet the regulatory structure China relies on to promote gas use remains under-researched. China's central government recognizes the need for market-based reforms of the gas sector, but what regulatory and policy adjustments are necessary to reorganize gas supply on a market basis? The textbook approach to energy market reform, and its implementation in the European Union, provides important guidance on how to create a regulatory basis to support competition in gas supply, provided national institutional characteristics are taken into account. This article engages in a comparative analysis of China's gas market reform policies and their implementation at the provincial level, focusing on Guangdong, a laboratory of economic reforms in China. The analysis demonstrates that reforms in 2019–2021 integrated key aspects of the textbook model in China's gas regulations, including third-party access, price deregulation and ownership unbundling. However, the textbook is of limited use to address remaining institutional barriers to reform, including resistance of distribution monopolies to competition from state-owned enterprises. Guangdong's experience shows that reform is possible, but only if accompanied by institutional and pricing adjustments reconciling vested interests with competition.

An empirical analysis on regional natural gas market of China from a spatial pattern and social network perspective

Coordinating the relationship between the national pipeline network company and the provincial natural gas company is the most crucial contradiction in China's natural gas market reform. This paper innovatively incorporates the comprehensive evaluation method, modified spatial gravity model, and social network analysis method to investigate the regional natural gas market to solve this dilemma. The result of the case study is as follows. (1) The development of the natural gas market in China's provinces is uneven, among which resourceful provinces and eastern provinces are relatively strong. (2) The densely connected areas of the natural gas market are mainly concentrated in the Beijing-Tianjin-Hebei region, the Yangtze-River-Delta region, and the Sichuan-Chongqing region. (3) Our work can clarify the node attributes and different efficacy of provinces. The core provinces all belong to the net spillover block, and they are located at key positions and roles in the obtained spatial correlation network. (4) Market participants, commodity diversification and openness are the prominent factors influencing the proposed spatial correlation network. This paper's major achievement is the reasonable division of five regional natural gas markets. The conclusion can help policymakers clarify the overall natural gas market spatial pattern and provinces' market potential and functions.

How will natural gas market reforms affect carbon marginal abatement costs? Evidence from China

Having recognised the significant role of natural gas in reducing carbon abatement costs, China is rapidly promoting its growth. However, obvious distortions exist in China’s natural gas market, and it is unclear how these may affect abatement policies going forward. Therefore, to assess the effects of energy market distortions on the carbon marginal abatement costs (MACs) in China, this study proposes a computable general equilibrium model for China’s natural gas sector, which considers the monopoly market structure, price regulation, and import restrictions. Results show that deregulation of gas prices will lead to an effective decrease in China’s MACs. China’s MACs are insensitive to liberalisation of the market monopoly or gas import restrictions. When all three distortions are fully deregulated, China’s MACs show an obvious upward trend. Finally, this study uses China's carbon trading policies as an example to propose policy implications under different scenarios of natural gas market reform.

Market reforms and determinants of import natural gas prices in China

We use a time series approach to investigate the determinants of import natural gas prices in China with the aim to understand the impact of its natural gas market reform and liberalisation. We pay special attention to the impacts on import liquefied natural gas (LNG) and pipeline gas prices. The liberalisation of the domestic natural gas market and the reformation of pricing mechanisms in the country have caused systemic structural changes. Our results provide clear evidence of a slow but steady departure from oil indexation, in which China’s import gas prices are increasingly affected by market fundamentals such as economic growth, climate factors, policies and other market factors. The empirical results provide supporting evidence to further market reform in China. Moreover, we can generalise the present study to the development of East Asian natural gas price benchmarks. It is important for China and the East Asian region to develop their own natural gas price benchmarks that better reflect regional market fundamentals.

Study of the impacts of upstream natural gas market reform in China on infrastructure deployment and social welfare using an SVM-based rolling horizon stochastic game analysis

Natural gas is expected to play a much more important role in China in future decades, and market reform is crucial for its rapid market penetration. At present, the main gas fields, pipelines and liquefied natural gas (LNG) infrastructure are mainly monopolized by large state-owned companies, and one of the important market reform policies is to open up LNG import rights to smaller private companies and traders. Therefore, in the present study, a game theoretical model is proposed to analyze and compare the impacts of different market structures on infrastructure deployment and social welfare. Moreover, a support vector machine-based rolling horizon stochastic method is adopted in the model to simulate real LNG price fluctuations. Four market reform scenarios are proposed considering different policies such as business separation, third-party access (TPA) and their combinations. The results indicate that, with third-party access (TPA) entrance into the LNG market, the construction of LNG infrastructure will be promoted and more gas will be provided at lower prices, and thus the total social welfare will be improved greatly.

Challenges of using natural gas as a carbon mitigation option in China

Under the Paris Agreement, China committed to peak its carbon dioxide emissions on or before 2030. Substituting natural gas for coal may facilitate it meeting this commitment. However, three major challenges may obstruct progress towards desired climate benefits from natural gas. 1) A fundamental price dilemma dis-incentivizing a coal-to-gas end-use energy transition: low city-gate gas prices discourage an increase in gas supplies while high end-use gas prices impede an increase in gas demand. 2) Insufficient and constrained access to natural gas infrastructure hinders connections between gas supplies and end-users, and obstructs a balance in seasonal supply and demand. 3) Methane leakage from the natural gas industry compromises the direct greenhouse gas emission reductions from combustion. To address these challenges, government and industry must work together to facilitate natural gas market reform, increase investment in natural gas infrastructure, and control methane emissions.

Investment strategy for underground gas storage facilities based on real option model considering gas market reform in China

Natural gas is expected to play a much more important role in China's energy supply, however, the lack of underground gas storage facilities becomes a serious barrier for its market penetration. Therefore, gas market reform is expected to be incentive for developing gas storage facilities. In the present study, a real option model was proposed to analyse the optimal investment strategy (investment timing and value) for underground gas storage facilities with/without the consideration of gas market reform. Uncertainties in gas market, government incentives and technological improvements were considered. The obtained results showed that it was not optimal for immediate investment in underground gas storage in China, and that to implement gas market reform would greatly contribute to gas storage construction. With the consideration of gas market reform, the investment of underground gas storage would be executed at 2026 with an investment value of 0.33RMB/m3 if there were no government incentive, while to invest in 2030 would be the best decision without the consideration of gas market reform, and the investment value is only 0.05 RMB/m3. Through a sensitivity analysis, the effects of changes in parameters related to gas market, government incentives and technological improvements on the investment strategy were investigated. The conclusions can provide useful information for gas storage enterprise decision-makers on whether and when to invest underground gas storage facilities in China considering uncertainties.

China's gas market under new situations: Trends and countermeasures – Taking Sichuan and Chongqing gas provinces as an example

The world oil and gas market has entered a new period of low oil prices, which has inevitably affected the natural gas market in China. So, it is urgent to timely study the market trends and to actively seek for appropriate countermeasures. In this paper, the development trends of China's gas market under the situations of New Normal and low oil prices were analyzed from the perspective of sustainable development of the natural gas industrial chain and market, by taking the Sichuan and Chongqing gas provinces as an example, which are of representative and of great significance to China in its natural gas market. The following trends were identified. First, the gas market reform will be deepened. Second, the competition among major market players will be intensified. Third, supply will exceed demand. Fourth, export tasks will be difficult. Fifth, higher demand of “guarantees of the minimum GDP, tax and profit” will be raised for local government. And sixth, low-cost strategy will be indispensable to oil and gas enterprises. In order to cater to these trends, some countermeasures were presented during the 13th Five-Year Plan. First, to improve the natural gas market system, to strengthen the supply-side reform, to complete market development modes, and to promote the introduction of governmental policies for relevant industries. Second, to develop the efficient gas-consuming clusters such as industrial parks, LNG-fueled vehicles and vessels, and distributed energy sources system, to establish innovative marketing strategy systems, and to boost the localization of resource consumption, through the establishment of strategic alliances for natural gas terminal markets in partnership with local governments and competitive enterprises, while the Chinese government is intensifying efforts in promoting energy conservation and pollution reduction and haze control. Third, to improve the cobweb pipeline network system, and to establish the strategic reserve system. And fourth, to make greater efforts to deepen internal reforms, to cut costs in a sustainable way through technological and managerial innovation, so as to respond to any changes in the natural gas market as a result of low oil prices.

New Market Designs and Their Effect on Economic Performance in European Union's Natural Gas Markets

The European gas market reform triggered new market designs which aimed to achieve competitive natural gas prices, efficiency gains, and security of gas supply. The paper analyses to what extent the effects of regulation-for-competition in the field of gas transport and related commodity measures on economic performance in the form of natural gas prices, network tariffs, efficiency gains, and investments in gas infrastructure can be empirically studied in a European wide comparative analysis. We demonstrate that conceptual and data constraints hinder the verification of the impact of regulation-for-competition (regulatory instruments to increase competition in the gas market) on those performance indicators. Natural gas prices remain oil-indexed and new investment projects are in practice exempted from competition measures. Assuming that a positive impact is a matter of fact is thus premature. A hold-up problem (where industry is reluctant to invest due to regulatory uncertainty and a lack of incentives) is difficult to quantify empirically. However, the industry's strong opposition to ownership unbundling coupled with the popularity of exemptions from third party access while still allowing long-term contracts does indicate that the general argument in favour of a hold-up problem has empirical relevance.

The Division of Labor is Limited by the Extent of the Market

The Division of Labor is Limited by the Extent of the Market