O’Sullivan Stephen

China is the world’s third-largest gas market – as well as its fastest-growing.  Government policy, economic growth and reform of its gas pricing system are driving growth in demand at double-digit rates.  The outlook for China’s gas market and its interaction with the wider world of global gas is both a major question for international gas players as well as for Chinese policymakers.  While it is primarily government policy driving gas demand today, through the coal-to-gas switching programme underway in northern China, once that ends gas pricing will be the key driver of demand.  The government faces a challenge of choosing between low domestic prices to stimulate demand and improve the environment or high prices to encourage domestic production and restrain the country’s rising dependence on expensive imports – particularly in a challenging international political environment.  The current pricing structure is a hybrid of regulation and market linkages – albeit moving in the right direction.  We identify and analyse the success stories of price reform in China and the challenges that government and industry still face – not all of them pricing-related, since they include midstream reform, infrastructure construction and access, the development of gas hubs and the inevitably serious challenge from renewables.

China’s Long March to Gas Price Freedom: Price Reform in the People’s Republic