Research On Multi-source Gas Benchmark Pricing Model And Its Application

Currently countries all around the world are deregulating gas industry. Different gas markets are constantly integrating, gas spot markets and futures markets are developing. China’s gas industry develops rapidly: nationwide pipeline network has taken initial shape, the consumption and supply of gas increase rapidly, gas industry become more and more market-oriented. In this context, the government introduced competition into the industry by changing the cost-plus pricing into netback pricing.How to properly regulate gas prices has always been the main issue of gas industry reforms. The development of gas industry in many countries has roughly experienced three phases, fixed price phase, pricing according to the value of gas phase and the formation of competitive market phase. In 2011, National Development and Reform Commission issued The Notice on Selecting Guangdong Province, Guangxi Autonomous Region as Pilots for Natural Gas Pricing Mechanism Reform. The notice states that the ultimate goal of natural gas pricing mechanism reforms is to deregulate ex-factory price and let market forces determine it, and the government only regulates the monopolistic transportation price. Therefore, netback pricing is just a pricing mechanism of a transitional period. To promote the sound development of gas industry,the government has to keep reforming the pricing mechanism of gas.This dissertation first analyzes the evolution of gas pricing system, points out the various defects of it. Then it studies foreign experience of gas pricing mechanism reforms, which provides useful reference for domestic gas pricing reforms. This dissertation aims to maximize social welfare under the condition of the minimization of government regulation cost and participation of pipeline companies. And on this basis,gas benchmark pricing models are built, which include the benchmark pricing model of gas production and gas selling and the benchmark pricing model of gas transmission and distribution. Then, it analyzes the application of the benchmark pricing models,which is composed of three parts. The first part is the application of the models when any kind of gas is sufficient to meet market demand; the second part is the application of the models when various kinds of gas are required to meet market demand; the third part is the regulation of gas prices of transmission and distribution sectors when the regulator has product preference. Finally comes the conclusions and suggestions of the dissertation.The main conclusions are: First, gas transmission and distribution sectors should adopt second-best pricing as benchmark pricing. When various kinds of gases are required to meet market demands, benchmark pricing of transmission and distribution sectors develops the Ramsey pricing rule. It represents the general pricing principle of products without independent demand and transfer payment. When any kind of gas is sufficient to meet market demands, benchmark pricing of transmission and distribution sectors is in accordance with the Ramsey pricing rule. Second, benchmark pricing of gas production and gas selling is marginal cost pricing. This optimal pricing principle has nothing to do with whether the supply is sufficient. Third, Gas prices can reflect the differences of their quality. The price of the kind of gas with high thermal efficiency and little pollution is higher than the kind of gas with low thermal efficiency and a lot of pollution. This shows that while benchmark pricing model takes into account substitutability between different kinds of gases, it can also reflect the value of different kinds of gases. Four, when any kind of gas can meet the market demand, whether pipeline companies will provide the preferred gas of the regulator depends on whether the price of the preferred gas meets Ramsey Rule and whether it can bring the maximum profit to pipeline companies.This dissertation puts forward the following suggestions: First, while the government promotes deregulation of the gas industry, it should keep the regulation of the transmission and distribution sectors. Since the government deregulated gas industry,domestic gas industry has become more and more competitive. Gas producers began to increase in number. The monopolistic power of the three major oil companies has been weakened. Domestic urban pipeline gas industry has basically formed a competitive structure. The government should continue to maintain the deregulation policy of gas industry, to encourage the realization of prices of gas production and gas selling determined by market forces. On the other hand, the government should always regulate gas transmission and gas distribution. The features of gas industry require regulation of gas transmission and gas distribution sectors. Countries all over the world still regulate monopolistic sectors of gas industry when deregulating the industry. Second, keep reforming gas mechanism. Let the market determine ex-factory price and sales price of gases. On the other hand, the government keeps price regulation at gas transmission and gas distribution sectors. Netback pricing mechanism is for the current transitional period.In highly liberalized American and British gas markets, gas prices are determined through competition between different resources. Third, when regulating gas prices, thegovernment should take into account the substitutability of different kind of gases. One significant feature of gas is its diversity. There exists substitutability between different gases. The current netback pricing mechanism relates gas prices to alternative energy:fuel oil and liquefied petroleum gas, which results from considering the impact alternative energy has on natural gas prices. However, the system doesn’t take into account the substitutability of different kind of gases. For example, there is strong substitutability between pipelined coal gas and pipelined natural gas. When determining prices of pipelined natural gas, we should consider the influence of substitutability of pipelined coal gas on pipelined natural gas prices.