Gas Market Liberalisation Reform

Table of contents

Executive summary..........................................................................................................................................

7

Global trends in natural gas sector ..................................................................................................................

11

Fast-growing Asian markets have become the main driver of natural gas development ...........................................

11

Liquefied natural gas development has accelerated the transition to market pricing ................................................

12

Gas market liberalisation development in Asia.........................................................................................................

13

References ..............................................................................................................................................................

15

Context and status of the Chinese gas market liberalisation ..............................................................................

16

General perspective.................................................................................................................................................

16

Gas reform in China .................................................................................................................................................

18

Challenges to China’s gas reform .............................................................................................................................

23

References ..............................................................................................................................................................

26

Implications for China’s gas market liberalisation .............................................................................................

28

Common features in gas market opening.................................................................................................................

28

China will develop a unique market model ...............................................................................................................

30

Well-planned market design is critical......................................................................................................................

32

Enabling third-party access to infrastructure............................................................................................................

33

Putting the market at the centre..............................................................................................................................

35

Liberalising the upstream sector..............................................................................................................................

36

The role of the regulator..........................................................................................................................................

36

Manage the transition process.................................................................................................................................

37

Enhancing international co-operation......................................................................................................................

38

References ..............................................................................................................................................................

39

Annex: Key insights of international practices towards liberalised markets.........................................................

40

Gas market designs .................................................................................................................................................

41

New project development .......................................................................................................................................

48

Tariff reviews and adjustments ................................................................................................................................

52

Capacity allocation ..................................................................................................................................................

56

Storage ...................................................................................................................................................................

61

Gas trading hubs .....................................................................................................................................................

62

Contract standardisation .........................................................................................................................................

66

Gas specifications....................................................................................................................................................

67

Dispatch and balancing ...........................................................................................................................................

68

Transparency requirements and price index publishing ............................................................................................

70

Financial tools .........................................................................................................................................................

73

Transition management ..........................................................................................................................................

73

Regulatory oversight ...............................................................................................................................................

75

References ..............................................................................................................................................................

77

Abbreviations and acronyms...........................................................................................................................

79

Gas Market Liberalisation Reform

Table of contents

List of figures

Figure 1.

Natural gas consumption in selected countries and regions, 2000-40 .....................................................

12

Figure 2.

Evolution of natural gas pricing by region, 2005-17.................................................................................

13

Figure 3.

Natural gas production and consumption in China, 2009-18 ...................................................................

16

Figure 4.

China's natural gas imports, 2006-18......................................................................................................

17

Figure 5.

Creating a natural gas hub .....................................................................................................................

29

Figure 6.

NGPL system map .................................................................................................................................

44

Figure 7.

Henry Hub infrastructure (should change to the new draw one by PIP without right part) .......................

45

Figure 8.

EU process for the development of incremental capacity .......................................................................

52

Figure 9.

Example of entry zones..........................................................................................................................

54

Figure 10.

Ascending clock auction.........................................................................................................................

57

Figure 11.

Example of secondary capacity release ..................................................................................................

59

Figure 12.

Map of several key market hubs in the United States .............................................................................

63

Figure 13.

Average daily spot market transactional data from ICE (2017) ................................................................

64

Figure 14.

EU virtual hub map ................................................................................................................................

65

Figure 15.

System balance signal example..............................................................................................................

70

List of boxes

Box 1.

Market reform gets a second wind in Japan............................................................................................

15

Box 2.

Shanghai Petroleum and Natural Gas Exchange and Chongqing Petroleum and Gas Exchange ..............

21

Box 3.

Opinions of the CPC Central Committee and State Council on deepening the oil and gas system

reform ...................................................................................................................................................

22

Box 4.

Gas market structure in Guangdong.......................................................................................................

33

Box 5.

Lessons from other market liberalisation processes ...............................................................................

40

Box 6.

Shippers ................................................................................................................................................

42

Box 7.

Tariff rate modification ..........................................................................................................................

55

Box 8.

Trading transparency and churn assist market liquidity ..........................................................................

66

Box 9.

Transition from long-term contracts ......................................................................................................

74

List of tables

Table 1.

Natural gas price reform process............................................................................................................

19

Table 2.

Natural gas transmission and distribution price policies..........................................................................

20

Table 3.

US and EU market summaries................................................................................................................

41

Table 4.

Examples of tariff methodologies ..........................................................................................................

55