The Economic Impact of  Price Controls on China’s  Natural Gas Supply Chain

Rioux, Bertrand; Galkin, Philipp; Murphy, Frederic H.; Pierru, Axel; Malov, Artem; Palacios, Felipe Feijoo; Li, Yan; Wu, Kang

doi:10.30573/ks--2018-dp31

Cited by 5 publications

(10 citation statements)

References 8 publications

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“…To explore the effects of China's current import regulations, we construct a short-run costs minimization model that represents the annual supply of oil and gas to the Chinese market at the provincial scale. It is built as an extension of the natural gas equilibrium model subject to regional price controls developed by Rioux et al (2018). The model is structured as a single year, short-run static optimization problem, subject to fixed provincial demand levels, considering only existing production and inter-provincial oil pipeline capacities, with no new investment factored-in.…”

Section: Model Descriptionmentioning

confidence: 99%

An economic analysis of China’s domestic crude oil supply policies

Rioux

Galkin

2019

Chinese Journal of Population Resources and Environment

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China's domestic oil production has lagged the growth in domestic oil consumption since the beginning of the 21st century, leading to a growing reliance on imports. In response, the Chinese government has introduced a number of policies, including import license constraints, to support domestic suppliers. In an effort to measure the economic impact of these policies we develop a short-run equilibrium model of China's wholesale oil and gas market at the provincial scale. We construct counterfactual scenarios that suggest that relaxing policies that prioritize domestic production in 2016, when the average price of Chinese oil imports was US$42 per barrel (bbl), could have increased China's import demand by 0.29 million barrels per day (MMbbl/d). This results in a substitution of 9% of China's domestic production in 2016, and a reduction of US $2.8 billion in crude supply costs including transportation as the imported oil has more direct access to the country's pipeline network, compared to the displaced domestic production. In addition, rising import prices since mid-2017 may provide a window of opportunity for Chinese policymakers to proceed with further deregulation of the domestic oil sector, as the short-term impact on domestic producers is reduced.

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Section: Model Descriptionmentioning

confidence: 99%

An economic analysis of China’s domestic crude oil supply policies

Rioux

Galkin

2019

Chinese Journal of Population Resources and Environment

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“…To assess the sensitivity of our simulation to import prices we run additional counterfactual scenarios changing the average crude import price used in the open market scenario of: $30/bbl, $40/bbl, $50/bbl, $60/bbl, $70/bbl, $80/bbl and $100/bbl (or $221/mt, $367/mt, $441/mt, $515/mt, $588/mt and $736/mt). In all of these scenarios the natural gas market is calibrated to 2016 market conditions, including price caps on pipeline deliveries to citygate consumers, as presented in Rioux et al (2018).…”

Section: Scenario Designmentioning

confidence: 99%

“…(KEM) of China Oil Model Description W e develop an optimization problem, where the suppliers of crude oil coordinate to minimize total supply costs. This problem is an extension of the natural gas module developed for the KAPSARC Energy Model of China (KEM China) by Rioux et al (2018). A mixed complementarity problem (MCP) approach was used in the original gas module to capture the economic impacts of price caps applied to some segments of China's wholesale natural gas market.…”

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confidence: 99%

An Economic Analysis of China’s Domestic Crude Oil Supply Policies

Rioux¹,

Galkin²,

Kang³

2019

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No portion of this document may be reproduced or utilized without the proper attribution to KAPSARC. An Economic Analysis of China's Domestic Crude Oil Supply Policies C hina's domestic oil production has lagged the very rapid growth in domestic oil consumption observed since the beginning of the 21 st century, leading to a large, and growing, reliance on imports to meet demand. China's current market structure and regulatory environment, among other factors, impede further development of the country's oil industry, despite a number of policies aimed at protecting domestic producers. Using a short-run equilibrium model of China's oil and gas supply industry, calibrated to 2016 data, we assess the impact of market access barriers on China's domestic production. We find that: Lifting all import constraints could have increased China's import demand by around 0.29 million barrels per day (MMbbl/d) in 2016. Opening China's market to cheaper oil imports in 2016 could have saved approximately $2.8 billion, equivalent to 1.7% of the country's oil supply costs, primarily due to import substitution for 17.8 million metric tonnes (MMmt), or equivalent to 0.29 million barrels per day (MMbbl/day), about 9% of domestic production that operates uncompetitively (see Figure 2). Liberalization of the import regime improves the efficiency of oil logistics through better utilization of the country's existing pipeline network, leading to a $600 million decline in overall oil transportation costs.

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“…Tight control of natural gas prices in China has been a major hindrance to the development of the country's gas resources, competitiveness with other fuels and overall market efficiency (Fang and Ma 2017). Reforming the pricing mechanism and ensuring efficient third party access to infrastructure have been the top priorities of China's policy agenda for the natural gas industry over the last decade (Rioux et al 2018). The degree of regulation has varied according to the source of the gas, the means and routes of transportation, and the type of end user (Chen et al 2018).…”

Section: Natural Gas Pricingmentioning

confidence: 99%

“…Without further reforms across the natural gas supply chain, China is likely to miss its planned target share of natural gas in total domestic energy consumption by the end of the decade. Reducing the price spread between different market segments that occurs due to government price interventions can be instrumental in supporting incremental demand (Rioux et al 2018). As envisaged in the 13 th FYP, future natural gas price reform will focus on regulating prices for pipeline transmission and distribution, while leaving the price of different sources of gas for different types of end users up to market forces.…”

Section: Natural Gas Pricingmentioning

confidence: 99%

Energy Governance in China: The Structures and Processes of Government Decision-Making

Chen¹,

Mollet²,

Efird³

2019

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The King Abdullah Petroleum Studies and Research Center (KAPSARC) is a non-profit global institution dedicated to independent research into energy economics, policy, technology and the environment across all types of energy. KAPSARC's mandate is to advance the understanding of energy challenges and opportunities facing the world today and tomorrow, through unbiased, independent, and high-caliber research for the benefit of society. KAPSARC is located in Riyadh, Saudi Arabia.

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The Economic Impact of Price Controls on China’s Natural Gas Supply Chain

Cited by 5 publications

References 8 publications

An economic analysis of China’s domestic crude oil supply policies

An economic analysis of China’s domestic crude oil supply policies

An Economic Analysis of China’s Domestic Crude Oil Supply Policies

Energy Governance in China: The Structures and Processes of Government Decision-Making

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