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 Tuesday.
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 U.S.
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 consumed.
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 PLC (BP.LN), BG
Group PLC (BG.LN), Gazprom OAO (GAZP.RS), Royal Dutch Shell PLC
(RDSA.LN), Vitol Group and GDF Suez S.A. (GSZ.FR).
"Crude-oil-based pricing is irrelevant now," said Toshiaki
Koizumi, Fuel Department General Manager of Japanese utility Tokyo
Electric Power Co. (9501.TO), 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 U.S. 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 Australia.
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
Corp. (CVX), 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 pricing system.
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
U.S. Henry Hub spot market price, the National Balancing Point, or NBP,
used in the U.K. and a Japan/Korea reference price being suggested by a pricing agency.
Last November, Japan's
Kansai Electric Power Co. (9503.TO) made a preliminary agreement with a
BP unit in Singapore to buy about 500,000 metric tons a year of LNG
linked to Henry Hub for 15 years starting in 2017.
Ryu Si-ho, a researcher at Korea Gas Corp. (036460.SE), 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 oil.
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.