The role of China in the East Asian natural gas premium

Abstract

Abstract East Asia is the world s main natural gas importing region, in which China became the world s largest gas importer in 2018. However, China s natural gas imports are subject to a high premium level, which increases the gas import cost and negatively impacts China s energy structure transformation and economic development. This paper analyses the East Asian natural gas premium (EANGP) and China s role in it. First, this study estimates the gas premium level in East Asia; second, it analyses the impact of five factors – the oil price, supply-demand relationship, supply risk, trade mode and transport mode – on EANGP in different periods. Third, it analyses the interaction between China and EANGP. Finally, it forecasts EANGP in 2040 and its impact on China s gas import price. The conclusions are as follows: EANGP in 2005–2016 showed a trend of rising first and then falling, with a peak in 2012 of approximately 15.4 $/MMBtu; the main influencing factors of EANGP are different in different periods; in general, the supply-demand relationship is one of the most important influencing factors for the premium; before 2010, China suppressed EANGP, after which it promoted EANGP; China s GDP (gross domestic product) loss caused by the premium in 2010–2016 was approximately 330 billion yuan; and the forecast results show that EANGP will rise by 0.54–0.86 $/kg in 2040. At last, some recommendations are provided as follows: promote the market-based pricing mechanism; accelerate the development of unconventional gas; balance the relationship between energy structure transformation and gas premium; improve gas import resilience; and promote the gas short-term and spot trade.