Natural gas market reform is imminent



China is the world's largest importer of liquefied natural gas (LNG), with a foreign dependence of 43%. On January 5, the China LNG comprehensive import CIF price Index jointly released by the Global Trade Monitoring and Analysis Center of the General Administration of Customs and the Shanghai Oil and Gas Trading Center showed that from December 27, 2021 to January 2, 2022, China LNG comprehensive import CIF price index was 243.26, an increase of 190.95%. China's gas prices are subject to the policy of "basic gate price + up to 20%", and the high imported natural gas prices form an upside down with the gate price, which brings huge cost pressure to domestic urban fuel enterprises. If domestic and international natural gas prices cannot be linked, it will cause serious harm to the entire natural gas industry chain, so natural gas market reform is imminent.

Industry analysts said that from the perspective of correct transmission of price signals and reasonable allocation of resources, the establishment of an oil and gas trading center will help cultivate the function of natural gas price discovery and cope with the impact of natural gas supply and demand and price fluctuations in the international market.

Speed up the forging of long board and repair of short board

In order to speed up the forging of the long board, make up the short board, and make the oil and gas industry chain bigger, stronger and better, Tianjin has successively issued policies to support it. On January 4, Tianjin Pilot Free Trade Zone issued Several Opinions on the Development of Bonded Oil and Gas Industry in China (Tianjin) Pilot Free Trade Zone, clearly supporting Tianjin Pilot Free Trade Zone to carry out oil and gas spot trading in the existing commodity spot exchange that is conducive to the development of the industry and the real economy, and to carry out cooperation with the futures exchange to promote the joint development of the spot market and the futures market. The Futures Daily reporter learned that as early as in April last year, the "Tianjin Comprehensive Pilot Plan for the expansion of the opening up of the Service industry" has clearly proposed to support Tianjin to carry out spot trading of oil and gas in existing trading venues. It can be seen that the commodity spot exchange is entrusted with the important task in the construction of the oil and gas supply, storage and marketing system.

Under the policy dividend, the existing spot exchange in Tianjin is actively promoting the market-oriented construction of oil and gas. According to the reporter, on December 13 last year, the Tianjin Municipal Bureau of Commerce officially approved, supporting the Tianjin Bohai Commodity Exchange (hereinafter referred to as the Bourse) to carry out oil and gas spot trading conducive to the development of the industry and the real economy, planning to launch major oil and gas products including liquefied natural gas, pipeline natural gas, gasoline, diesel, fuel oil.

Since the establishment of the National pipeline network Company in 2019, the market-oriented system reform of China's oil and gas "controlling the middle and letting go of both ends" has moved rapidly toward the deep water area. Insiders said that after nearly two years of exploration and practice, the oil and gas field has basically achieved the goal of fair and open infrastructure and diversified market competition subjects, and the continuously expanding scale of oil and gas resource transactions has played a key role in realizing the flexible and efficient allocation of oil and gas resources.

In order to build a large-scale and professional oil and gas trading market, many places in the country are accelerating the layout of oil and gas trading centers. According to incomplete statistics, at present, the country has built Shanghai Oil and gas trading Center, Chongqing oil and gas Trading Center, Zhejiang International Oil and Gas trading Center, North International Oil and gas center and other spot oil and gas trading centers with regional influence. The reporter learned from the "2021 Chongqing Oil and Gas Forum Winter Summit" held in October last year that Tianjin, as an energy hub city of Beijing-Tianjin-Hebei and even northern China, is actively preparing to build the Tianjin oil and gas trading center, which will echo and complement the advantages of Shanghai, Chongqing and other trading centers, and give play to its own characteristics to achieve efficient allocation of resources. Jointly explore the market-oriented progress of the reform of the oil and gas system, and work together to form a "China price" with international competitiveness.

Innovating oil and gas resource trading models

Under the goal of "dual carbon", the development of oil and gas industry has entered a fast lane. How to help the reform of oil and gas industry chain and effectively release the market vitality of competitive links? Industry insiders generally said that "innovative oil and gas resource trading model" is the focus of the oil and gas trading center.

The reporter learned that in May last year, the Shanghai Oil and Gas Trading Center launched pipeline gas pre-sale transactions. This trading mode creates a new trading mode of natural gas supply, price stability and volume lock, which can effectively integrate trading resources and reduce upstream and downstream transaction costs. At the same time, Chongqing Oil and Natural Gas Trading Center carried out the medium and long-term listing of natural gas warehouse receipts. The warehouse receipt transaction can better realize the secondary transfer of natural gas and facilitate the discovery of the real market price. Moreover, the warehouse receipt secondary transfer transaction adopts the online settlement method, which is conducive to improving the transaction efficiency.

"Using Internet technology to do a good job of green addition for the oil and gas industry is a major trend in the future." The relevant person in charge of the Bourse told reporters that at present, the Bourse is working with relevant units to jointly build a digital platform for natural gas spot bulk trade across the country. "Forming open and transparent prices through platform trading, guiding offline natural gas trading prices, weakening the adverse impact of market risks, and optimizing the trade and business ecology of the entire industry are the core roles." The person in charge said.

However, the lack of industry standards is a major problem for platform construction. The reporter learned that the Bourse is actively exploring the development of various industry standards for digital natural gas transactions. On December 22 last year, the Bourse cooperated with the Eastern Oil and Gas Network to jointly compile and release a series of oil and gas price indexes and build a special area for oil and gas trading platforms.

Industry analysts said that the increasingly diversified trading methods and trading products help to discover the true price of natural gas, promote the reasonable allocation of resources and timely transmission of prices, and create more favorable conditions for the market-oriented reform of natural gas prices.

Time linkage to grasp the right to speak

At the "10th China International Petroleum Trade Conference" held on November 8 last year, Wang Fenghai, general manager of the previous period, said that in the face of the increasingly strong risk management needs of the natural gas industry, the previous period continued to promote the research and development of natural gas futures, liquefied natural gas futures has been officially approved by the China Securities Regulatory Commission, and is now accelerating the listing work.

Industry insiders believe that with the continuous development of oil and gas trading centers, the future LNG trade is more and more inclined to flexible spot trading, and the price of the futures market has a good guide and reference for the spot market price. At the same time, through futures trading, LNG buyers and sellers can use hedging and other tools to avoid the risk of price fluctuations.

"The Bourse is exploring the establishment of standard warehouse receipt business model for spot trading of oil and gas and other commodities. After the listing of LNG futures, we will actively cooperate with futures exchanges to help enhance the international voice of China's commodity pricing." The relevant person in charge of the Bourse said.

As the world's largest LNG importer, China's status in the international market continues to rise. At the same time, relying on the growing domestic natural gas market demand and the price discovery function of the futures market, it helps to form the benchmark price of China's natural gas trade, so that China has a strong bargaining power when importing LNG. Strengthen China's voice in various pricing mechanisms in the international LNG market.