Analysis On China’s Natural Gas Pricing Mechanisms And Social Welfare Effects

Recently, as the "Natural Gas Shortage" phenomenon frequently arises,"a high risein the Natural Gas price" has become a hot topic in the public. This year’s NPC&CPPCCreport has pointed out a " reform in Natural Gas Pricing",to let the price act its basicfunction in resource allocation. Whether the Natural Gas Pricing is reasonable or not willsurly influence Natural Gas’ resource allocation and its social welfare results.Accordingly, doing a research on Natural Gas Pricing and its social welfare effects has avery important theoretical and applied significance.As one of the exhaustible resources, Natural Gas is non-renewable, and Natural Gas’pricing mechanism is different from the general goods because of its commoditycharacteristics of resource. In our country, the Natural Gas industry belongs to NaturalMonopoly field, social welfare effects will differ under the combination of its producing,transportation and selling with these diverse pricing methods.A review of international and domestic Natural Gas Pricing and a description ofNatural Gas Pricing from the point of industry chain were given in the thesis. On thisbasis, the Lenar Index of the three giants companies (CNPC、Sinopec and CNOOC) inour country’s Natural Gas Market were computed with data from the websites our ofNational Statistic Bureau and these companies, then their respective Monopoly Power inour country’s Natural Gas Market were analyzed. Furthermore, the thesis analyzed"inversion of price", which was stated as the Natural Gas selling price is lower than itscost, and "two prices" between the domestically-produced gas and the importedproduction, accordingly, the model reflecting the "two prices" was constructed. The studyindicated that a rise in Natural Gas price would lead to a bigger social welfare loss in thelong run than that in the short period, and would incur a bigger influence on domesticallyproduced gas than that on the imported part.According to this study, the basic conclusion in pricing is that the most efficientpricing is generally Marginal Cost Pricing, while nowadays, among various natural gaspricing methods,"the backward pricing of net market value" maybe the most suitableone. Meanwhile,"Prices by stages" maybe adopted. In the end, suggestions on China’sNatural Gas Pricing Mechanism and Price Reform were made, which were related to suchfour aspects as the natural gas industry chain, government, industry and company.