Asia-Pacific Natural Gas Market
AMID ASIA’S GROWING reliance on imports, Developing a Natural Gas Trading Hub from the International Energy Agency identifies obstacles and opportunities for establishing a gas market that reflects supply-demand fundamentals. Asia is expected to become the world’s second-largest
gas market by 2015 and yet is dominated by long- term contracts in which the price of gas is linked, or indexed, to that of oil. In recent years, this has helped keep Asian gas prices much higher than those in other parts of the world, leading to serious questions about the sustainability of the system and its effects on Asian competitiveness. In report shows how the Asia-Pacific region’s
natural-gas market can evolve from one in which prices are linked to oil to one featuring a more competitive and dynamic network of trading hubs in which prices better reflect local gas demand and supply. It shows what would be necessary to create a more integrated natural gas market in the region in which price signals are more effective and yield benefits for Asian competitiveness. “Natural gas has the potential for improving
energy security and yielding economic and environmental benefits in Asian-Pacific countries,” said IEA Executive Director Maria van der Hoeven as she presented the report in Tokyo. “Asia is already home to the world’s fastest-growing gas market. The future role of gas in Asia will depend considerably on how the pricing of natural gas is tied to the fundamentals of supply and demand in the region.” Long-term contracts can play a beneficial
of focusing on price regulation along the value chain, governments must maintain and supervise competitive market conditions;
• Credible state commitment to regional gas market competition can instill confidence, encourage new market participants, and promote the use of transparent hubs to balance producer portfolios;
• Transport and commercial activities should be separated and prices deregulated at the wholesale level;
• Singapore holds the best initial prospects for gas hub development, with Japan, Korea, and China as likely competitors in the future.
Price Formation of Natural Gas Consumption, World & Asia Pacific, 2005-10
1,000 1,500 2,000 2,500 3,000 3,500
55% 500 51% 2005 2007 2009 World Market Regulated Traditionally, natural gas trade in Asia has been dominated by oil indexed
pricing, with a share of 88% of natural gas traded in the region in 2010. No significant changes in this trend can be observed throughout 2005-10.
role in providing investment security, but their current pricing does not accurately reflect gas market fundamentals or the competitiveness of gas relative to other fuels. Moreover, without a competitive spot market for natural gas, there is little incentive and little scope to change current commercial practices. This leaves both consumers and producers with insufficient room to explore different options, and limits the degree to which natural gas can serve as a flexible source of energy for both growing and mature economies. Among the report’s
key findings
recommendations are the following: • Current market
and structures discourage gas
consumption and impact Asian competitiveness vis-à-vis more flexible markets in the US and even Europe;
• OECD experience suggests that the single biggest obstacle for an effective gas market is a lack of infrastructure access;
• The role of governments must change: Instead Source: IGU’s Wholesale Gas Price Formation
“The prospects are there, but even the prime candidates will need to do more,” said Van der Hoeven. “China’s fast-growing domestic gas network is still underdeveloped, and the entire production chain remains heavily regulated. Singapore’s small domestic market means that to grow as a hub it must rely on re- exports, which are hindered by regulation. Last but not least, Japan has a great potential to act as a hub, but it will have take some important steps. Domestically, that means improving infrastructure access and further developing its domestic power market. But externally, it also means engaging with exporters to affect the terms of gas contracting so as to improve efficiency while maintaining energy security. The LNG producer- consumer dialogue initiated recently by Japan can be effective to facilitating that engagement.” •
www.iea.org/publications March 2013 65 2010 2005 53% 2007 50% 2009 Asia-Pacific 52% 2010 55%
60%
63%
bcm
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