IEA: Gas trading hubs needed for Asia

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TOKYO, Feb. 26 (UPI) -- Asia is on course to become the world's second largest gas market, after North America, by 2015, a new report from the International Energy Agency says.

Yet 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," said IEA Executive Director Maria van der Hoeven Tuesday as she released the "Developing a Natural Gas Trading Hub in Asia" report in Tokyo.

Natural gas trading in the region predominately relies on long-term contracts in which the price of gas is linked, or indexed, to that of oil.

But this practice has kept Asian gas prices much higher than those in other markets.

Currently, Asian nations are importing gas at prices five times higher than North American gas trading hubs.

Constraints to the development of gas markets in Asia, IEA says, include the region's lack of a trading hub to facilitate the exchange of natural gas as well as the development of a transparent price signal to direct investments in natural gas infrastructure.

Singapore has the best initial prospects to become a gas trading hub as the government has "a distinctly hands-off approach to the markets," the report says.

Singapore LNG Corp. last November said that its new liquefied natural gas terminal, the country's first, would receive in the second quarter of 2013 an LNG shipment from Qatargas Operating Company Limited, the largest LNG producer in the world.

SLNG Chief Executive Officer Neil McGregor, in making that announcement, said it was a significant milestone not only because it would be Singapore's first LNG shipment, "but also because it affirms that Singapore has the capability to import LNG from anywhere around the world."

In her speech, Van der Hoeven said that Japan, the world's biggest user of LNG, also has "a great potential" to act as a gas hub but needs to "take some important steps" to improve its infrastructure access.

Furthermore, she said, compared with a "properly integrated LNG market" such as Europe, destination clauses in Japan's rigid LNG contracts add an extra burden of $10 billion on the country.

IEA says a "hands-off" approach is needed from Asian governments to boost natural gas markets, including price deregulation at the wholesale level, separating transport from commercial activities, sufficient network capacity, non-discriminatory access as well as a competitive number of market participants including financial institutions.