Asia to unite for stable gas supply; Flexible gas pricing to end Asian premiums

Updated : 2014-03-24 19:04

Asia to unite for stable gas supply
By Choi Kyong-ae

Asian buyers of liquefied natural gas (LNG) will join forces to secure gas in the rapidly-growing Asian market, regional energy experts said in Korea, Monday.
Energy executives from Korea, China and Japan discussed ways to meet growing demand for gas in the region and to diversify suppliers. They shared views on demand-side issues during the morning session of the 27th Gastech Conference & Exhibition.
The event will last through Thursday at KINTEX in Goyang, Gyeonggi Province.
Shigeru Muraki, chief executive of the Energy Solution Division at Tokyo Gas, said diversification of supply sources will help change the landscape of the Asian gas market.
As Asian countries are heavily dependent on gas imports, they are fully exposed to external uncertainties mainly related to prices and supplies. Japan and Korea are the world’s two biggest importers of LNG.
“A number of LNG projects in the U.S., Canada, Mozambique and East Siberia will come on stream during the next decade. Huge resources in East Siberia will be delivered to markets by both pipelines to the Northeast Asian market and LNG to the Asia Pacific market,” Muraki said during the panel discussion.
He argued that pipeline supply could be the most viable option given the geopolitical factors in the locations of Russian gas sources in East Siberia and Sakhalin, and gas markets in Northeast Asia.
Pipeline projects that connect Russia to major LNG clients such as Korea, China and Japan will be accelerated during the next decade and eventually contribute to a stable supply of natural gas and expansion of the natural gas market in this region, Muraki explained.
But he stressed, “For the development of cross-border connectivity through pipelines, a regional framework for networks among countries involved is essential.”
Kwon Young-sik, chief operating officer of the Resources Business Division at Korea Gas Corp. (KOGAS), said it will take some time for Asian countries to import gas through pipelines.
“Pipelines will help diversify the source of energy but importing piped gas should be proceeded as mid-to-long term plan considering the three essential issues: price competitiveness, required infrastructure and conditions of geopolitics,” Kwon said.
The KOGAS executive encouraged Asian buyers to build comprehensive strategies in order to realize the goal of obtaining cheap LNG. On top of diversification of LNG sources, the strategies also include diversity of pricing structure and dispersion of procurement timing.
“Southeast Asia and Australia dominated the supply source to Asian markets and they are being replaced mainly by Middle East countries and now the Gulf of Mexico and Africa are set to take more shares in the near future,” Kwon said.
For Asian buyers, dividing purchase volume on a regular and periodic basis will help secure stable supplies. Korea and Japan have recently discussed a broad range of joint-purchases to secure a competitive LNG price, he said.
To source cheaper LNG, KOGAS said it will continue to participate in LNG project developments such as Gladstone and Prelude in Australia, LNG Canada and Mozambique Area-4. KOGAS is the world’s single biggest buyer of the supercooled gas.
Currently, Asian countries buy LNG at a multiple of five or six times U.S. piped-gas prices. But they are seeking to purchase the clean gas under the pricing system linked to Louisiana’s Henry Hub, the American natural-gas benchmark, instead of linking to oil prices.
“Asian market has been traditionally premium LNG market because no alternative energy sources is available, and the oil-linked pricing formula dominates Asian contracts without taking into account supply and demand movement,” Kwon said.
Taiwan’s CPC Corp. Chairman Sheng-Chung Lin said Asian countries urgently need to have a more transparent pricing system as the proportion of natural gas is increasing.
Pointing specifically to India, China, Taiwan, Korea, and Japan, he said, “The price of energy has escalated 170 percent in the last five years for major Asian buyers. Ensuring a stable supply at a reasonable price is a critical concern.”
Muraki at Tokyo Gas said, “Increase of LNG with destination flexibility and spot cargoes as well as flexible volume from existing suppliers will create liquidity of LNG market which will lead to LNG trading market.”
Potential locations of LNG trading markets will be Singapore due to their ideal location in Asia, he said, adding Japan and Korea are other options due to their market size and LNG storage capacity.
More than two markets would allow “LNG and natural gas price in Asia to be converged to international rational pricing level,” Muraki said.
Meanwhile, global energy consumption will double by 2050 from the current level at the start of this century. Energy from renewable sources could rise to around 25 percent of the energy mix by 2050, up from 13 percent currently. Fossil fuels could still provide more than two thirds of the energy mix in 2050, slightly down from 80 percent now, according to Royal Dutch Shell.

Updated : 2014-03-24 22:43

Flexible gas pricing to end Asian premiums

Yoon Ja-young
Northeast Asia’s natural gas market should be more flexible and its pricing structure changed, Korea’s top policymakers and industry leaders said at the opening of a global gas conference at KINTEX, Monday.
“The market has been burdened by inflexible contract conditions and rigid pricing practices,” Minister of Trade, Industry & Energy Yoon Sang-jick said at the opening ceremony for the Gastech Conference & Exhibition.
“As a result, consumers in this region have been paying a so-called Asian premium which prevents both consumers and producers from fully enjoying the benefits of new opportunities,” he said.
One of the biggest events in the global gas industry, Gastech runs through Thursday, with the Korea Gas Corp. (KOGAS) as host.
In his opening speech, the minister pointed out the negative effect of the oil-indexation of gas prices.
Unlike in other developed markets, Korea and Japan determine the price of liquefied natural gas (LNG) according to international oil prices. Hence, even when there is an oversupply of gas globally compared to crude oil, the price doesn’t go down sufficiently.
“Specifically, the current oil-indexation of gas prices and the destination clause are the two most urgent matters for improvement. Resolving these hurdles will lay a firm foundation for the transition to a positive-sum market,” h said.
Jang Seok-hyo, president of KOGAS, echoed this view. He said the consumption of gas, which has diverse advantages such as widespread availability, competitive supply costs, and relative environmental friendliness, will ultimately depend upon affordability and the stability of prices.
“Strong demand, combined with oil-linked LNG pricing, has driven prices higher in the Asia-Pacific region, creating the so-called Asian premium. Challenges over high and unstable prices, as well as the availability and reliability of future energy supplies, are critical factors going forward,” Jang said.
He forecast that global LNG demand will increase by 50 percent by the mid-2020s, mainly driven by demand from Northeast Asia, with Japan and Korea already importing about 70 percent of the world’s LNG.
“By 2035, countries like China are expected to quadruple their LNG demand to power their fast-growing economies,” he added.
The president also said that gas has helped drive Korea’s economic growth and spur innovation in industries.
“Korea is now the world’s second largest LNG buyer, and Korean shipbuilders hold more than 80 percent of the current order book for LNG carriers. We want to share what we have learned and the benefits we reaped through gas with others,” he said.
Maaren Wetselaar, acting upstream international director of Royal Dutch Shell, said gas will become the prime source of energy replacing oil by 2030.
“Energy demand could double from its level in 2000 by 2050. While CO2 emissions must be half of today’s to avoid serious climate change. Renewable energy could definitely be part of answers,” he said in a keynote speech.
At Gastech this year, 383 companies from 44 countries and around 15,000 people from global energy industries are participating, to share their insights and the latest technologies on gas.