While Southeast Asian countries have spent many years talking about the Trans-ASEAN gas pipeline project, LNG has emerged as the faster, simpler way to respond to the region’s growing need for gas, according to speakers at the Singapore International Energy Week on Monday.
The Trans-ASEAN interconnection still holds strong appeal for countries with little or no domestic gas production and no LNG import infrastructure, but even those countries acknowledge its development has been slowed by the need for multiple governments to reach agreements before construction can start.
Meanwhile, those outside the Association of Southeast Asian Nations (ASEAN) argue LNG trading is the way forward.
“While ASEAN has been supporting interconnection pipelines in the region, due to the geographic limitations and the need for political coordination, it is unrealistic to expect to see pipelines developing more rapidly than LNG facilities,” Maria van der Hoeven, executive director of the International Energy Agency, told delegates.
The shift to LNG imports will be challenging, and the region should not count on exports from the United States to answer all of its needs, she added. “While some North American LNG will cross the Pacific, it will not be enough to supply the entire region, and it will be expensive.”
But the rise of an Asian LNG hub would provide the region with more security, creating price markers and transparency to help pull prices down, Yasuo Ryoki, a senior executive officer at Japan’s Osaka Gas, told Interfax. “Pipelines take time: they must have a common regulatory framework involving different governments, and construction takes time,” he said. “Therefore, as we don’t have international pipeline connections, let’s look at LNG.”
A true LNG market, however, will require liquidity and price transparency – two factors still lacking in Asia. Governments need to encourage the creation of a “commonly acceptable” price by, for instance, allowing export credit agencies and other state financiers to fund projects using a uniform and visible index, Ryoki said.
“Spot deals are taking place, but the problem is there is no transparent, common price for spot, and to create one we need government initiatives,” he added.
The Trans-ASEAN pipeline would be one of the largest gas networks in the world, linking reserves in Indonesia, Malaysia, Singapore, Vietnam, Myanmar, the Philippines, Brunei and Thailand. It was planned to be fully operational by 2020 (see The Trans-ASEAN pipeline may take a miracle, 10 August 2011).
But in a region where some of the world’s largest gas exporters have started importing LNG to meet their own rising demand, the project is becoming out of date, speakers said. A pipeline network of the scale of Trans-ASEAN requires numerous governments to come to agreement, on top of financing and construction issues. LNG import infrastructure, on the other hand, usually requires local and federal government approvals and private sector initiatives, which can be much easier to secure.
Even governments that are still keen on developing new pipelines said it is more realistic to begin with bilateral links rather than getting bogged down in talks involving too many governments.
“Laos can’t afford to wait for the full blueprint, we need to start with bilateral agreements which will form the basis for multilateral agreements,” said Viraphonh Viravong, Laos’s vice minister of energy and mines. “We can’t wait for perfect conditions.”
Similarly, countries involved in the Trans-ASEAN pipeline need to “get their own houses in order” before international cooperation can proceed, said Maximus Ongkili, Malaysia’s minister of energy, green technology and water.
Asian LNG hub(s)
There are several candidates for LNG trading hubs in the region. Singapore is the most prominent, with a government that is pushing to replicate its position in the oil market, but Tokyo Bay, Shanghai, and even Kuala Lumpur, also have potential (see Petronas pours cold water on Asian LNG hub prospects, 25 February 2014).
The hubs do not have to be mutually exclusive; Asia could follow the European gas market model and develop several trading centres, van der Hoeven told journalists.
For now, however, Singapore is the front-runner, while the Japanese and Chinese governments still need to put the necessary regulations in place, Ryoki said.
Japan launched an over-the- counter LNG futures market in September, but its 5,000 ton limit on deliveries will make it difficult for buyers that need physical supplies, he said, adding that the government has stressed this is the country’s first step towards trading.
“This is its first grade of elementary school, so I hope it will graduate university and become a good businessman,” Ryoki said.
Shanghai, meanwhile, boasts the advantage of domestic production, national and international pipelines, LNG terminals and strong demand.
“But do you think it can be a free, non-regulated trading hub? And how many real Chinese buyers can there be? Will the big ones – China National Petroleum Corp., China National Offshore Oil Corp. – deal in that way? If China is a completely liberalised market, it might be possible,” Ryoki said.
Source: Natural Gas Daily