Substitution Effect of Natural Gas and the Energy Consumption Structure Transition in China

Abstract

A crucial problem which China faces is how to improve its energy consumption structure. In this paper, a system dynamic model of energy substitution based on energy capital and putty-clay theory is adopted, in order to explore the substitution effect of natural gas on the energy consumption structure transition in China. The results demonstrate that the huge capital stocks of coal and oil capacities effectively delay the progress of natural gas substitution for optimizing the energy structure, resulting in a limited effect of natural gas substitution in the short term and a large cumulative effect in the long term. Further scenario analyses indicate that natural gas subsidies and carbon price policies have positive effects on the growth of natural gas consumption and the optimization of the energy structure. We also found that a higher pressure of safety supply may emerge to meet the demand for energy consumption in the energy transition. Recommendations are given for improving the energy consumption structure in China from three aspects: allocating capital investment to natural gas, reducing the transition cost between natural gas and other energy sources, and awareness of the systemic risks in energy consumption.