Necessity and feasibility of building natural gas futures markets in China

Natural gas is the only one alternative clean energy source which can replace coal and oil on a large scale at present. Natural gas industry in China has a bright prospect in the near future and its steady and healthy development will highly depend upon a reasonable gas pricing system. In view of this, through an investigation into the rich experiences from those developed countries in natural gas industry as well as the characteristics of gas pricing in futures markets, this paper concludes that it is necessary for China to build its own natural gas futures markets for the following reasons. (1) Gas prices discovered in futures markets are most close to the ideal equilibrium price. (2) In futures markets, gas prices will be possibly predicted in a continuous long-term period. (3) On the contract expiration date (or the settlement day), gas prices in futures and in spot markets will come to convergence. In addition, it is also feasible for China to own a natural gas futures market because (1) participators in a natural gas futures market have been more than enough and such a market demand is still soaring high; (2) natural gas pipelines and storage reserves facilities have been almost completed, providing good conditions for physical delivery in a futures market; (3) those futures markets for other products are developing well in present China and have collected good management experiences and accumulated rich talents resources; and (4) due to its predominant geological location, China will be expected to become an important center for natural gas pricing and delivery in East Asia. In conclusion, China needs to build its own natural gas futures markets as soon as possible, thereby to help explore the future gas prices in the global market.