Earth Institute Research Projects

Asian LNG Trading Hubs: Myth or Reality

Lead PI: Mike Fulwood

Unit Affiliation: Center on Global Energy Policy (CGEP)

May 2018 - Ongoing
Global ; Asia ; China ; Japan ; Singapore
Project Type: Research Outreach

DESCRIPTION: The growing importance of liquefied natural gas (LNG) in Asia’s energy mix has spawned efforts in the region to create a trading hub like the established hubs in the United States and Europe. Asian policy makers find the idea of a trading hub attractive, though at times there seems to be confusion over the fact that a hub is not a tool (to create competitive prices) but rather the outcome of the creation of an ecosystem in which market forces can thrive. History shows us that creating a competitive market environment is a lengthy process that can at times be painful, especially for the incumbents that benefit most from the status quo. The most advanced hub initiatives are in Singapore, Japan, and China. However, each of these locations faces its own set of challenges, and none has so far been successful in establishing market-based gas pricing or a trusted pricing benchmark for the global LNG market. Viewed against examples such as Henry Hub in the United States and the National Balance Point (NBP) and the Title Transfer Facility (TTF) in Europe, there are legitimate questions as to whether an Asian LNG trading hub is a myth or will become a reality.

The purpose of this paper is to see what might be required to develop an LNG trading hub. The important factors that supported pipeline hub development in other regions included significant domestic production and gas storage facilities, a competitive wholesale natural gas market, nondiscriminatory third-party pipeline access, standardized contracts for both transportation and the sale and purchase of gas, liquid physical markets that encourage the development of a futures market, and price reporting. The paper also considers what the alternatives might be if an LNG trading hub cannot easily be achieved.