Asia to be 2nd largest global gas market by 2015 with 790 Bcm/year demand: IEA
Tokyo (Platts)--26Feb2013/713 am EST/1213 GMT
Asia will become the second-largest global natural gas market after
North America by 2015 with annual demand rising to 790 billion cubic meters,
the International Energy Agency said in a report released Tuesday.
"Asia is already home to the world's fastest-growing gas market. But
expanding the role of gas in Asia will depend on regional market conditions
that allow the fuel to compete autonomously in local energy markets that are
themselves connected to global energy markets," IEA Executive Director Maria
van der Hoeven told a conference in Tokyo sponsored by the Institute of
Energy Economics, Japan.
"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," Van der Hoeven said.
It will be "dominated by long-term contracts in which the price of gas
is linked, or indexed, to that of oil," the report said.
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Developing countries might require long-term contracts to ensure
security of supply for their fast-growing economies, while producers look for
secure returns on their "considerable infrastructure investments," it added.
Long-term contracts can play a beneficial 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, the IEA
said. Without a competitive spot market for natural gas, there is little
incentive and little scope to change current commercial practices, it added.
Among current constraints the IEA included Asia's lack of a trading hub
to facilitate the exchange of natural gas and the development of a
transparent price signal to steer investments in natural gas infrastructure.
The IEA added that the Asia-Pacific region would require competitive
national/regional markets to develop a "reliable natural gas price." It would
then need to meet a set of institutional and structural requirements to
create enough market confidence to attract new participants from the
financial sector and to encourage market participants to use a trading hub to
balance their portfolios.
A "hands-off" approach from governments is necessary for the development
of natural gas markets in Asia, the IEA said. This would involve separating
transport from commercial activities, price deregulation at the wholesale
level, sufficient network capacity and non-discriminatory access as well as a
competitive number of market participants including financial institutions,
The IEA said the potential for the development of a competitive
wholesale natural gas market in Asia was limited as in mature Asia-Pacific
markets "governments continue to emphasize security objectives over economic
Among Asian nations, the IEA sees Singapore with the most potential to
become a gas trading hub. "Singapore seems the candidate best suited to
develop a competitive natural gas market and trading hub in the medium term"
as the government has "a distinctly hands-off approach to the markets," it
It referred to the plan for an open-access regime for the future SLNG
terminal, adding that financial parties serving global commodity markets were
already in place in Singapore, and well-positioned to serve emerging natural
Singapore LNG Corp. will raise the capacity of its LNG regasification
terminal on Jurong Island to 9 million mt/year from 6 million mt/year, and
will also add a fourth storage tank, Minister in the Prime Minister's Office
S Iswaran said in October 2012.
The SLNG terminal is scheduled to commence operations in the second
quarter of 2013, with an initial throughput capacity of 3.5 million mt/year
and increasing to 6 million mt/year once additional jetties and
regasification facilities are completed by the end of 2013, Platts reported
The current site has space to hold up to seven LNG storage tanks, with
the possibility of adding two LPG tanks as well.
Three storage tanks, each with a capacity of 188,000 cubic meters, are
currently being constructed.
At the conference in Tokyo, Van der Hoeven also said: "Japan has a great
potential to act as a hub." But she added that the country needs to "take some
important steps" domestically particularly on improving infrastructure access.
"This policy to open infrastructure access to gas and efforts to improve
flexibility of purchase portfolio could put Japan on track towards effective
a trading hub," she told the conference.
Commenting on Japan, Van der Hoeven also said destination clauses in
rigid LNG contracts place an extra burden of $10 billion on the country,
compared with a "properly integrated LNG market" such as Europe.
At the conference, van der Hoeven wondered why despite the fact that
"gas demand is fairly weak in Europe and many companies struggle to fulfill
their offtake obligations," more LNG cargoes were not heading to Asia.
"In this case, the reason is not physical but contractual and
institutional," she said, referring to destination clauses and take-or-pay
The lack of a trading hub in Asia makes it difficult to carry out
trading, she added.
A competitive natural gas market in Asia would need an even more
flexible supply of LNG, which will require continued expansion of shipping
and third-party access to regasification terminals in the region, the IEA
said. This would also involve relaxing destination clauses in LNG supply
deals, it added.
The IEA said that a competitive natural gas market and reliable gas
prices will not develop overnight, and will not necessarily lead to low
prices. This will, however, allow participants in the Asia-Pacific region to
"increase portfolio flexibility" in line with maturing gas markets, it added.
--Takeo Kumagai, email@example.com
--Edited by Maurice Geller, firstname.lastname@example.org