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No Asian gas hub imminent: Osaka Gas

Lack of fully liberalised East Asian downstream sectors and growing linkage to European prices slow progress towards a stand-alone regional gas market

The development of a fully liquid traded gas hub in East Asia remains unlikely in the near future, an analyst at Japanese utility Osaka Gas told the European Annual Gas Conference in Paris on Tuesday. 

Physical spot LNG trading and paper trade in futures contracts settling against the JKM index provided by price reporting agency S&P Global Platts continues to grow. But factors particular to East Asian countries’ gas markets, as well as an increasing benchmark role for the European TTF reference price in Asia, continue to hamper the development of a truly Asian gas-on-gas competitive traded market. 

While it would be beneficial to have a pipeline gas and LNG hub in Asia, “to create a transparent market like in North America and Europe, we need to reform our market structure first,” says Chikako Ishiguro, senior analyst at Osaka Gas.  

In the main East Asian LNG importing countries, Kogas is still the dominant player in South Korea, she says, while China’s pipeline gas market is subject to government price controls. And, although Japan can count on a wider number of players, they remain domestic-focused, with no real trading happening between countries, says Ishiguro. 

Low JKM price levels are currently attracting Asian buyers’ interest, with traded LNG cargoes reaching 180 in September this year, but volumes are “still small” compared to total import volumes in the region, which are still mostly linked to oil-prices, she continues. 

In addition, “transparency [of spot trading] is a question mark,” says Ishiguro. And, while spot LNG prices look attractive at the moment, the possibility of a return to higher prices may negatively affect trading liquidity in the future. 

There is a “separation between the paper and physical market” as the latter “is bigger and will stay bigger in Asia compared to Europe”, agrees Jean-Christian Heinz, head of LNG at brokerage SCB. Asian traders continue to look at the Dutch TTF market as a hedging tool and for price direction. “When there is no traction in Asia, Asian traders are turning to TTF to see what is going to happen and mimicking it. We are waiting for the day it will be the other way round,” says Heinz.

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