The economic impact of price controls on China's natural gas supply chain

Bertrand Rioux, Philipp Galkin, Frederic Murphy, FELIPE ANDRES FEIJOO PALACIOS, Axel Pierru, Artem Malov, Yan Li, Kang Wu

Research output: Contribution to journalArticlepeer-review

10 Scopus citations

Abstract

Despite significant progress made by China in liberalizing its natural gas market, certain key areas such as market access and pricing mechanisms remain controlled by the government. To assess how such distortions impact the market, we have developed a Mixed Complementarity Problem model of China's natural gas industry, with a novel representation of price caps associated with supply obligations. The model is used to assess how government pricing policies and restricted third party access to midstream infrastructure impacted the supply logistics of China's profit maximizing natural gas firms in the year 2015. We find that lifting the price caps for regulated natural gas demand sectors could yield a 4.7% (1.4 billion USD) reduction in total system cost and reduce the national average of marginal supply costs by 14%. Improving third party access to the pipeline and regasification infrastructure would result in an additive total cost saving of 7.6% (2.2 billion USD) and a 16% reduction in average prices, due to replacing domestic and imported LNG with pipeline imports. The LNG industry would be negatively affected by the reforms investigated in this study, as market players would gain more flexibility in their logistics and would utilize lower cost supply pathways.

Original languageEnglish
Pages (from-to)394-410
Number of pages17
JournalEnergy Economics
Volume80
DOIs
StatePublished - May 2019
Externally publishedYes

Keywords

  • China
  • Mixed complementarity problem
  • Natural gas
  • Price cap
  • Third party access

Fingerprint Dive into the research topics of 'The economic impact of price controls on China's natural gas supply chain'. Together they form a unique fingerprint.

Cite this