Issues in formulating natural gas benchmark prices in China

Publication Type:
Journal Article
Natural Gas Industry, 2017, 37 (4), pp. 143 - 149
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中国天然气基准价格形成中的若干问题.pdfPublished Version490.13 kB
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© 2017, Natural Gas Industry Journal Agency. All right reserved. The oil indexed pricing mechanisms for natural gas and LNG in Asia markets, although successful until 1990s, are general considering to be no longer appropriate, including weak relationship between oil and gas market fundamentals. Since the current oil-indexed pricing system fails to reflect the natural gas market fundamentals, several East Asian countries including China are considering formulating their own natural gas benchmark prices. In view of this, this paper first analyzed the impetus of formulating natural gas benchmark price in China, interpreted the basic concepts relevant to trading hubs, and proposed the necessary conditions including Natural Gas Exchange that for buyers and sellers to trade contracts, gas trading hubs, both virtual and physical, standardized spot & futures products, and competitive market environment & enough market participants. On this basis, such present status of China was analyzed as follows. First, far from the necessary conditions, China is only equipped with spot markets up till now for lack of futures markets and clearly defined trading hubs. Therefore, establishing a trading platform should be the immediate action. Second, future benchmark hubs are expected to be established in those conjunction areas of artery lines or in those major producing or consuming markets with adequate pipeline capacity. Looking ahead, a competitive natural gas market should be formed through market-oriented reform, which is the prerequisite of formulating natural gas benchmark prices. Besides, under the present status of not-in-place reform environment in China, relevant departments should consolidate the foundation by coordinating the relations between spot and futures exchange platforms and establishing trading hubs, etc. The paper suggests that despite of different views on the creditability of a Chinese benchmark price, it will be more or less utilized at least for gas and LNG trades with China.
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