By ALEXANDER MARTIN
TOKYO -- In order to ease Asia's high natural gas prices,
the region should work to develop a trading hub and facilitate
a market in which they better reflect supply and demand
fundamentals, the chief of the International Energy Agency said
Governments in the region need to work to allow markets to
decide natural gas prices with minimal interference and through
price deregulation, while also meeting institutional
requirements to attract new market participants, Maria van der
Hoeven, IEA executive director, told a Tokyo conference.
Her remarks come at a time when most sales of liquefied
natural gas in Asia are through term contracts as long as 20
years, indexed to crude-oil prices. Asian gas demand is soaring
and more supply options are opening, and this is driving demand
for shorter-term, more flexible arrangements.
"A key to improving functionality in the Asian gas market,
that's to develop an Asian hub," she said, explaining how Asian
gas prices have remained much higher than those in Europe or the US.
An IEA report released Tuesday said that while the system
now could be beneficial in providing investment security, it
didn't reflect the fundamentals and competitiveness of gas
within the energy mix of mature economies where the gas is
Singapore seemed to be most suited in Asia to develop a
competitive natural gas market and trading hub in the medium
term, the report said, with Japan, Korea and China likely
competitors in future.
As of late last year, at least 14 companies had set up LNG
trading or marketing desks in Singapore, including BP, BG
Group, Gazprom, Shell, Vitol and GDF Suez.
"Crude-oil-based pricing is irrelevant now," said Toshiaki
Koizumi, fuel department general manager of Japanese utility
Tokyo Electric Power Co., or Tepco, a major LNG buyer.
"Crude-oil is not necessarily a good global benchmark. Its
prices are sometimes manipulated by speculators and do not
reflect supply-demand situation properly," he told The Wall
Street Journal recently.
"The Asian natural gas market is the fastest-growing gas
market worldwide, and is expected to become the second-largest
by 2015, with 790 billion cubic meters of natural gas demand,"
the IEA said.
Among new entrants to Asia's gas markets in coming years
will be suppliers selling US and Canadian gas, available due to
technology that has unlocked huge
reserves trapped in shale rock.
A string of LNG export terminals are being planned in North
America where spot market gas prices are as much as four times
lower than prices offered by suppliers in Asia and
Japan is the world's largest buyer of LNG, followed by South
Korea. Energy and trading companies from both have been among a
rush of investors pouring money into North American shale projects in the past two years.
Existing suppliers of LNG to Asia markets such as Chevron,
which is leading the development of two huge LNG terminals on
Australia's northern coast, have said that for them to underpin
such projects, they need certainty on
future revenues, and that this is reflected in the present
Japan's demand for natural gas has soared following the
shut-down of its nuclear reactors after the March 2011
Fukushima nuclear disaster. Ms. van der Hoeven said while Japan
had well-developed infrastructure and financial markets for
LNG, its segmented and monopolized electricity market was a
hindrance in introducing a wholesale natural gas market.
"Japan has great potential to act as a hub, but it needs to
take important steps, improving infrastructure and further
developing its domestic power market," she said.
Tepco's Mr. Koizumi said a number of different gas pricing
options could be considered, including basing contracts on
benchmark US Henry Hub spot market price, the National
Balancing Point, or NBP, used in the UK and a Japan/Korea
reference price being suggested by a pricing agency.
Last November, Japan's Kansai Electric Power Co. made a
preliminary agreement with a BP unit in Singapore to buy about
500,000 tpy of LNG linked to Henry Hub for 15 years
starting in 2017.
Ryu Si-ho, a researcher at Korea Gas Corp., said he knew of
discussions going on over a partial introduction or a change to
a spot-based system in place of long-term contracts indexed to
But any change isn't likely in the near future, he said,
adding that it isn't easy to renegotiate pricing of existing
long-term contracts with suppliers.
Dow Jones Newswires