Rationality of Natural Gas Prices and the Determining Factors in China

Jian Chai, Ting Liang, Zhe George Zhang, Sophie Kong and Zenghui Liu

Emerging Markets Finance and Trade, 2019, vol. 55, issue 6, 1229-1246

Abstract: The rationality of natural gas price has a significant impact on a nation’s energy-saving strategies, emission reduction, and therefore the overall economy. This article examines the rationality of the natural gas pricing strategies in China through an investigation of the natural gas price distortions in domestic and international markets and the natural gas price determining factors using a Bayesian structural equation model. It is found that there are significant distortions in the industrial, residential, and commercial sectors compared to alternative energy sources. Further analysis suggests that these distortions could cause a “reverse substitution” in the domestic energy market. Compared to the international market, Chinese natural gas prices are found to be expensive and to lack price elasticity. The results also indicate that economic activities and demand are the most important natural gas price determinants, followed by supply and alternative fuel prices. This article provides empirical evidence to assist in natural gas pricing reforms in China and presents a basis for the design of reasonable energy pricing policies.

Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:55:y:2019:i:6:p:1229-1246

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DOI: 10.1080/1540496X.2018.1471596

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