Evaluate the Welfare and Allocation Effects of Pipeline Separation and Price Liberalization in China’s Natural Gas Market

China considers the healthy and sustainable development of the natural gas market to be crucial for achieving carbon neutrality and has been actively reforming its natural gas market to optimize the energy and economic structure. While previous studies have discussed the effectiveness of policy measures, there is a lack of simulation research and quantitative analysis on the impact of reform measures in China. This study addresses this gap by constructing a numerical simulation model based on China’s long-distance pipeline network and natural gas market, calibrated to 2019 as a pre-reform baseline and extended to the partially reformed market of 2024–2025. The model includes a base scenario to replicate real market conditions and two policy scenarios that incorporate market-oriented reform measures such as deregulation of prices, pipeline separation and interconnection. The effects of these measures on gas allocation and social welfare are examined. The results indicate that (1) pipeline separation and price deregulation increase social welfare, with welfare shifting from consumers to producers and distributors; (2) natural gas consumption and price changes exhibit pronounced regional heterogeneity, even though prices rise overall, reflecting the complexity of policy effects; (3) the reform follows a path of diminishing returns, and the current stage policy already captures about half of the welfare gain and most of the price adjustment, while shielding consumers from much of the surplus loss. Finally, we conclude with policy implications for China’s natural gas market reform. As these reform measures are now being implemented, the quantified welfare and price effects also offer a timely, model-based reference for assessing China’s ongoing gas-market marketization.