Understanding Asian energy buyers

An EMART Asia panel discussion on "The Role of LNG within the Global Energy Complex and the Impact of Asian Buyers on the West" focused on the manner in which the utilities and power sector in Asia operates differently from its UK or North America counterparts.

Mark Hutchinson, Managing Director, HIS, pointed to the changes faced by power sector utilities and the coal market, as key challenges faced by Asian buyers. He believes changes in the power sector will further drive the developments we see in the LNG industry.

"To create the market between buyers and sellers, you need buyers to be incentivised to be creative," said Hutchinson. He added that it would be challenging to develop a spot market when there are relatively conservative fuel purchasers.

He also noted that there have been dramatic changes in the coal market mirroring that of LNG with respect to Asia. Just a few years back, almost all coal in Asia was purchased on long-term contracts. Now, he said, the region is seeing more coal traders as well as an increasing ability to hedge.

Hutchinson pointed out that, in general, electricity produced by coal is cheaper than from natural gas. Therefore, utilities will typically go for coal first--as is the case for Japan. Above the long-term contracts, he foresaw a growing spot market for coal as well as for gas.  He said prices of these energy sources are already converging over the last few years, although it will still be a long way to go in the development of a spot market for these two fuels.

Responding to an observation made that some countries have gone ahead with spending huge capital expenditure on putting in place Floating Storage and Regasification Units (FSRUs) and LNG re-gasification plants without any fixed LNG contracts, Nicholson said that this would provide freedom (energy security) despite being an expensive hedge.

By :Lim Dao Xian, EMA