Asia will need to develop natural gas trading hubs to go along with its rising dependence on gas for the power and industrial sectors or the current pricing structures will continue to favor coal as the fuel of choice, Maria van der Hoeven, chief of the International Energy Agency, said Monday.
"Despite the volume of its gas consumption and trade, one fundamental thing is missing in this region: trading hubs, where natural gas would be priced not in relation to oil but depending on regional supply and demand fundamentals," she said, in an address at the opening of the Singapore International Energy Week.
She added that "the lack of an efficient regional gas market keeps Asian prices very high, favoring coal in particular."
She pointed to the wide variations of LNG prices as symptomatic of the problem, with LNG going into Japan this past summer at $18/MMBtu, compared with gas prices in the US at $3/MMBtu and in Europe of $10-$12/MMBtu.
"This considerable price gap is raising questions in Europe and Asia about appropriate gas pricing," she said.
Europe is responding by starting to develop gas-to-gas pricing on trading hubs, with some progress in the UK and on the European continent, she said.
"But Asia is lagging," she said.
The IEA has been studying the situation and released a report in September on the pricing and regulation challenges in China's gas market, and it expects to issue a broader report in early 2013 on what is need to develop a gas trading hub for all of Asia.
Van der Hoeven said that according to IEA experience, the structural and institutional changes needed in Asia are:
"First, to establish rules for third-party access and to set up an independent tariff regulator.
"Second, to introduce non-discriminatory access to pipelines, overseen by transmission operations which are transparent and unbiased.
"And finally to introduce spot and future markets, bringing in a large number of market participants, including financial institutions."
