The Emergence of Global Gas Markets: Asia Pacific

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Natural gas demands in the Asia-Pacific region are in a state of constant growth. Gas markets in the region differ to North America, because they are more fragmented and have very limited pipeline infrastructure in place. However there is a lot more going on in the region than might originally meet the eye.

Asia Pacific is made up of East Asia, Southeast Asia and the Oceania. This region is separated into three distinct markets; the mature, well established markets like Japan, Korea and Taiwan, emerging giants, China and India as well as the startup markets including South-East Asia, Malaysia, Indonesia and Brunei.

Asia is the fastest growing natural gas market globally; it is expected to be the second largest by 2015 with 790 billion cubic meters of Liquefied Natural Gas (LNG) demand. What’s more, countries such as Australia, Pakistan and China are reporting some of the largest quantities of recoverable shale gas.   Continuing in our five-part series on the emergence of natural gas markets, I will take a look at the Asia Pacific region and the prospect for growth.

Gas Prices in Asia Pacific

Gas prices in Asia Pacific are extremely high due to the prevalence of long-term contracts, where gas prices are directly linked or indexed to those of oil.  Long-term contracts are required to help insure the security of their supply as well as the return on supplier’s infrastructure investments. However more recently, a small growing portion of the natural gas consumed is now being priced based on gas-to-gas competition, which is directly linked to supply and demand. The following graph shows a breakdown of imported gas prices in North America and Europe in comparison to Asia-Pacific.

Figure 1: Market-based pricing in gas trade in North America, Europe and Asia-Pacific (Source: EIA, Developing a Natural Gas Hub in Asia)

Shale Gas across Asia Pacific

The graph below shows the steady trend of increased LNG imports throughout Asia-Pacific.

Figure 2: Natural gas demand in Asia-Pacific, 1990-2017 (Source: EIA, Developing a Natural Gas Hub in Asia)

The Asia Pacific region will have to overcome some significant obstacles in order to become an active exporter in the natural gas market. For instance Australia will have to find ways to lower the cost of extraction by creating more incentives for companies to invest in shale development and China will have to build upon their partnerships with foreign companies such as Shell Oil in hopes that they will acquire the skills and technology needed to develop and explore their shale gas reserves.

Recently the Chinese government has been exploring shale gas exploration. The US Energy Intelligence Agency estimated in 2011 that they have over 1275 trillion cubic feet of shale gas, which would make it one of Chinas largest onshore sources for energy. Expanding this exploration would help them lower their dependence for LNG from Russia and other overseas gas sources, but will cost them large amounts of money initially to develop to proper technology for extraction.

Liquefied Natural Gas Imports and Future Outlook

A significant trend in recent times has been the increase in the amount of countries in Asia Pacific importing LNG for the first time. The Asia-Pacific region accounts for roughly 71% of the total Liquid Natural Gas imports worldwide. This has been due in part to economic factors and environmental disasters, such as the 2011 Japanese earthquake and tsunami.

The environmental disaster boosted natural gas imports by 15% to make up for the loss of nuclear power in the country. Improved economic activity in Japan raised imports by 13% and the lowered production of natural gas coming from the Krishna Godavari Basin in India due to the closure of over one third of its wells, sky rocketing imports by 51%.

In a 2013 joint report by the OECD and International Energy Agency, analysts recommended that the development of a natural gas trading hub in the Asia Pacific region could create a market where prices would better reflect supply and demand, consequently dropping the price of LNG creating a more secure economic situation. Singapore has been touted as being the best location to develop a gas hub with potential future plans for others countries such as Japan, Korea and China. Figure 3 below shows how new countries will start to play a bigger role in the import of LNG across Asia-Pacific.

Figure 3: Natural gas imports in Asia-Pacific, 2011-2030 (Source: PetroMin, Asia Pacific Natural Gas & LNG)

ZEMA can help you manage the growing amount of new data being generated and create an accurate snapshot of the LNG market.

Check back next week as we wrap up our blog series on the Emergence of Global Gas Markets, focusing on Africa and South/Central America.



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