Global impact of uncertainties in China’s gas market

This paper examines the uncertainties in Chinese gas markets, analyses the reasons and quantifies their impact on the world gas market. A literature review found significant variability among the outlooks on China's gas sector. Further assessment found that uncertainties in economic growth, structural change in markets, environmental regulations, price and institutional changes contribute to the uncertainties. The analysis of China’s demand and supply uncertainties with a world gas-trading model found significant changes in global production, trade patterns and spot prices, with pipeline exporters being most affected. China's domestic production and pipeline imports from Central Asia are the major buffers that can offset much of the uncertainties. The study finds an asymmetric phenomenon. Pipeline imports are responding to China's uncertainties in both low and high demand scenarios while LNG imports are only responding to high demand scenario. The major reasons are higher TOP levels and the current practice of import only up to the minimum TOP levels for LNG, as well as a lack of liberalised gas markets. The study shows that it is necessary to create LNG markets that can respond to market dynamics, through either a reduction of TOP levels or change of pricing mechanisms to hub indexation.

Note: This article is in press and will be published in Volume 10 of Energy Policy in May 2017. Read the article online here.

Authors: Dr Xunpeng Shi, Principal Research Fellow, Australia-China Relations Institute, University of Technology Sydney; Hari Malamakkavu Padinjare Variam and Jacqueline Tao, Energy Studies Institute, National University of Singapore.