Governments considering natural gas trading hubs in Asia

Governments in Asia, the world’s largest consumer of natural gas, are exploring the possibility of establishing liquid natural gas (LNG) market hubs.

While Asia accounts for three quarters of global LNG trade and one third of total global natural gas trade,
it lacks a pricing benchmark that can dependably reflect supply and demand changes in the region’s natural gas markets.

Natural gas market hubs are a central feature of competitive gas markets in the United States and Europe. They provide locations for trading natural gas, determining price and often publicly report price indexes
that are used as standards for the value of natural gas in the larger regional market.

The emergence of the United States as a major supplier of LNG led the U.S. Energy Information Administration to commission a contractor study that analyzes efforts to create regional LNG trading hubs and price benchmarks in Asia and some of the challenges they face.

In 2016, the Japanese government developed a strategy to liberalize its domestic natural gas market and created initiatives to encourage private-sector participation in the development of an LNG trading hub and a pricing index. Japan, China, and Singapore have established benchmark LNG pricing indexes.

The study revealed several challenges to establishing LNG hubs. Shipments can be large and difficult to store. There can also be significant time between contracting and delivery and cargoes can differ in LNG specifications. Asian LNG import terminals have limited pipeline interconnectivity and operate predominantly under long-term bilateral contracts between numerous suppliers and buyers, which limits transparency, third-party access, and publically available price benchmarks.

The EIA report concluded that, as LNG indexes continue to become more accurate and as reliable hub-based indexes arise, LNG indexes will likely continue to be the most dependable gauges of natural gas market value in Asia over the next few years.