Can the Shanghai LNG Price Index indicate Chinese market? An econometric investigation using price discovery theory
Yeli ZENG1, Cong DONG2(), Mikael HÖÖK3, Jinhua SUN4, Danyang SHI1
1. School of Economics and Management, China University of Petroleum, Beijing 102249, China 2. School of International Trade and Economics, University of International Business and Economics, Beijing 100029, China 3. Department of Earth Sciences, Uppsala University, Uppsala 75105, Sweden 4. Crude Oil Department, Petro China International Co., Ltd., Beijing 100033, China
China became the world’s second largest liquefied natural gas (LNG) importer in 2018 but has faced extremely high import costs due to a lack of bargaining power. Assessments of the Shanghai LNG Price Index, first released in 2015, are vital for improving the understanding of these cost dynamics. This paper, using the LNG price index data from the Shanghai Petroleum and Gas Exchange (SHPGX) coupled with domestic and international LNG prices from July 1, 2015 to December 31, 2018, estimates several econometric models to evaluate the long-term and short-term equilibriums of the Shanghai LNG Price Index, the responses to market information shocks and the leading or lagging relationships with LNG and alternative energy prices from other agencies. The results show that the LNG price index of the SHPGX has already exhibited a long-term equilibrium and short-term adjustment mechanisms to reflect the average price level and market movements, but the market information transparency and price discovery efficiency of the index are still inadequate. China’s LNG market is still relatively independent of other natural gas markets, and marketization reforms are under way in China. The influence of the SHPGX LNG price index on the trading decisions of market participants is expected to improve with further development of China’s LNG reforms, the formation of a natural gas entry-exit system, and the increasing liquidity of the hub.
Platts DES (Delivered Ex Ship) LNG spot price in Japan/South Korea
HHNGS
Henry Hub natural gas spot price
EIA (American)
Energy Information Administration
SHLNGWS
Chinese national ex-factory price index for LNG released by the SHPGX
SHHNSE
LNG alternative energy price index released by the SHPGX
OGLNGWS
Chinese national ex-factory price index for LNG released by a Chinese PRA
OGCBMWS
Ex-factory price of coalbed methane reported by a Chinese PRA
USD
United States dollar
MBtu
Million British thermal unit
AIC
Akaike information criterion
LR
Likelihood ratio
CQPGX
Chongqing Petroleum and Gas Exchange
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