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Asia’s quest for LNG

Hydrocarbon Engineering,

A new report from the IEA has said that if Asian governments are to get the most from LNG it must reform the natural gas market. The report specifies that limited flexibility and pricing issues are the main challenges to overcome in the development of a more efficient market. The IEA had previously highlighted the need for more transparent and efficient markets in Asia, where gas prices are four times those in North America, and can be as high as five times in the winter, but the issue is becoming more severe as the region’s gas demand rises and as the LNG market becomes ever more globalised. Some 150 billion m3 in new LNG supplies, led by several projects in Australia, are expected to become available between now and 2020. In the same time frame, Asian gas demand is expected to grow by approximately 250 billion m3.

Maria van der Hoeven, IEA Executive Director said, ‘the advent of new LNG supplies represents a golden opportunity for Asia, but first the region’s governments must address the rigid and liquid markets that undermine affordability and accessibility for consumers. For gas to be a sustainable contributor to energy security in the region, Asia must look to reforms.’

For consuming countries in Asia, high prices have become unsustainable, and the problem is even more acute for those countries that have regulated low end user prices. The process of lowering costs of LNG, however, will not be swift nor will it be simple, as the LNG supply chain is capital and energy intensive, according to the IEA.

The report

The report offers recommendations for both governments in consuming countries and LNG producers on how to develop an LNG market in Asia that efficiently balances supply and demand while optimising trade flows. The report says that governments should provide effective, open, third party access to infrastructure, which would form the basis for the development of gas trading hubs in Asia. In this regard, Singapore is the best example, with the first open access, mutli user LNG terminal in Asia. The report encourages governments to embrace pricing reform, with less intervention in wholesale prices. Instead, governments should encourage the natural development of competitive pricing in order for gas to be a sustainable contributor to energy security in the region.

The report also calls on gas producers to embrace the idea of reforms even though these will require modifying long standing business models. Without reforms, producers risk losing market share to alternatives. Gas must be in a position to compete against cheaper coal and low carbon electricity sources such as nuclear and renewables. The report also calls for gas producers to improve their project management and execution, noting that recent cost overruns on large LNG projects were hindering the ability of gas to compete.

Edited from press release by Claira Lloyd

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