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IGU Advocates Market Driven Gas Pricing In Asia Pacific
23/3/2012
Market Restructure Warranted to Ensure the Industry is Sustained

23 March, New Delhi – The days of subsidised gas will soon need to change in order for the gas industry in Asia Pacific to achieve a sustainable growth, according to the International Gas Union (IGU).

Delivering a keynote at the 7th Asia Gas Partnership Summit (AGPS), Datuk (Dr) Abdul Rahim Hashim, President, IGU, said, “There is a need to restructure and liberalise our electricity and gas markets. It is imperative that energy at-large and gas in particular, is priced at market to reflect its true cost and value. This ensures the right incentives throughout the energy-value chain, to encourage efficient usageand to ensure continued investments in the upstream sector.”

Addressing the topic, ’Evolving Dynamics of the Asian Gas Market: Challenges of Sourcing, Integration & Sustainability’ at AGPS, Datuk Dr Abdul Rahim said, “The affordability and pricing of gas needs to be set against a backdrop of political considerations; gas price elasticity; the context of the fuels gas might compete with; and price volatility. There must also be considerations relating to how carbon tax or ‘cap and trade' policies might affect gas price formation, and whether a price formation mechanism is warranted.”

In terms of LNG prices, most studies have suggested that the only way for LNG to thrive is for prices to be at least USD 6/MMBtu, perhaps even USD 8/MMBtu. Compared to other markets, Asian prices have maintained a strong premium relative to Henry Hub (pricing point for natural gas futures contracts traded on the New York Mercantile Exchange), and have risen sharply in the wake of the tsunami/earthquake. For instance, the Japanese differential to HH stood at USD 11.72/MMBtu in August 2011. The spread was wide enough to divert LNG cargoes from the Atlantic to Asia. Recent Nigerian cargoes have been sent east to reap the benefits of higher-paying Pacific markets.

It is projected that the world will consume 35% to 40% more energy by 2030 than in 2005, in tandem with growing global population, economic expansion, individual’s prosperity and urbanisation. However, as the export and domestic markets are competing for similar resources, sustaining supply security remains highly challenging against the backdrop of declining production and depleting reserves.

BP Statistical Review of World Energy (June 2011) research shows that between 2000 and 2011, the demand-supply gap for natural gas in Asia Pacific increased at an Annual Average Growth Rate (AAGR) of around 13.4%. Much of the increase in gas demand in Asia Pacific comes from emerging economies like China and India, together contributing to around 25% of the region’s aggregate gas demand since 2008.

Additionally, China and India have considerably increased their LNG imports in recent years and together accounted for 15.2% of the total LNG imports in Asia in 2010. India and China are currently the biggest LNG buyers from Qatar and Australia. To meet future rise in demand, Japan, Korea and Taiwan are expected to source additional LNG cargoes from the same suppliers. As a result, IGU predicts that ASEAN countries (Malaysia, Singapore, Thailand and Vietnam) could face tough competition from these traditional East Asian buyers to secure LNG cargoes from the same sources.

“Of course, we will have more energy choices, but these renewable technologies remain marginal, inefficient, costly without subsidy and relatively unreliable in the absence of game-changing innovations. Therefore, going forward, we will have to become smarter about using energy more efficiently with the aim to prolong the lifetime of existing cleaner energy sources, such as gas. So we must have pragmatic and cost-effective ways to improve energy efficiency and encourage conservation.”

“The stakes are high and will become even higher unless we get it right early,” Datuk Dr Abdul Rahim said.

Issues on gas pricing, security of supply and liberalisation of the gas industry will be discussed in depth by industry leaders at the 25th World Gas Conference, organised by the IGU, 4-8 June, 2012, Kuala Lumpur. For more information, visit www.wgc2012.com. Closing date for registration: 30 APRIL 2012.

By maintaining close ties with many other international energy organisations and co-operating with governments, policy makers and multi-lateral agencies, the IGU has been working with its international members including GAIL, for many years, to promote the technical and economic progress of gas, presenting its research findings at the World Gas Conference every three years.

About WGC2012

Since 1931, the International Gas Union has been organising the World Gas Conference once every three years; the triennial World Gas Conference and Exhibition is the biggest and most important global gas industry event, attracting 5,000 industry professionals from all over the world and showcasing the latest developments, with information on policies, strategies technologies, challenges and opportunities. The 25th World Gas Conference will take place in Kuala Lumpur, Malaysia, 4-8 June 2012 with the theme “Gas: Sustaining Future Global Growth.”

WGC2012 will feature 14 keynote speakers, 10 strategic panels, 4 Luncheon Addresses, 42 Technical Sessions, 135 Poster Sessions, expert forums and 3 task force sessions. The event also has a 10,800sqm exhibition with 270 companies from over 80 countries, showcasing the latest in technologies and developments within the gas industry.

For further information or to register for WGC2012, please visit www.wgc2012.com. To follow WGC2012 on LinkedIn, please visit http://ow.ly/73nMx.

About IGU

The International Gas Union was founded in 1931. It is a worldwide non-profit organisation whose objective is to promote the technical and economic progress of the global gas industry.

The members of the IGU are associations and entities of the gas industries in 77 countries which account for over 95% of the natural gas traded around the world, and maintain very close ties with many other international energy organisations. It consists a total of 116 members, of which 78 are charter members and 38 are associate members.

WGC2012 Conference Secretariat

Level 20, Tower 1, Etiqa Twins

11, Jalan Pinang

50450 Kuala Lumpur, Malaysia

Tel: +60 3 2171 3477 / +60 3 2171 3575

Fax: +60 3 2171 3535

Email: media@wgc2012.com

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