(Speaking at the launch was IEA's Laszlo Varro, Head of the Gas, Coal and Power Division)
Singapore has the best prospects of developing into regional LNG hub for Asia, according to the International Energy Agency's (IEA) report on "Developing a natural gas trading hub in Asia". The report launch was hosted by the Energy Market Authority (EMA) on 1 March 2013 in Singapore, and presented by Laszlo Varro, IEA's Head of Gas, Coal and Power Division.
Asia is the single largest source of gas demand globally, fuelled by economic growth and environmental considerations.Varro said that even the Gorgon LNG project in Australia, the largest such investment in the world at US$52 billion, would cover only six months of Asia's demand growth.
However, unlike North America and Europe, the natural gas market in Asia is dominated by long-term, oil price-indexed contracts. According to IEA figures, such contracts accounted for 86 percent of the 180 billion cubic meters of natural gas traded in 2010.
According to the IEA, Asia is tipped to become the world's second-largest gas market by 2015.
Despite the different systems, gas prices in the three regions were almost converging in 2009. It is only in the last three years that gas prices in Asia have become five times more than North America, driven by the unconventional gas revolution in the US and the record rise in oil prices. This has raised questions about the sustainability of Asia's current pricing system. Japan, for example, could save US$10 billion a year in efficiency gains if Asia had a properly integrated gas market.
Hence, against the backdrop of the current indexation to oil prices and the prevailing long-term gas contracts, IEA recommends the development of an Asian natural gas trading hub. This would facilitate a market for natural gas to better reflect supply and demand fundamentals, and would steer Asia's transition towards "green growth".
Within Asia, Singapore stands out as the best-suited candidate for establishing an LNG trading hub, according to the IEA report. Already an important commodities trading hub, Singapore's advantages include its strategic location, supportive legal environment, third-party access and bidirectional storage facility.