Asian Natural Gas: Supply, Infrastructure and Pricing Issues

Executive Summary

This paper discusses the supply, infrastructure, and pricing aspects of Asia’s growing interest in natural gas. Because Asia has been a region of comparatively high-cost gas supply, resulting low gas market share, and costly infrastructure, it faces significant challenges as it moves forward.

MAIN FINDINGS

• Asia’s growing reliance on natural gas comes at a time when it must increasingly rely on more distant and costly supply sources.
• The region’s oil-indexed long-term contract pricing structure is being challenged by lowpriced liquefied natural gas (LNG) based on commodity competition from the restructured gas industries in the Atlantic Basin.
  Asia’s growing reliance on natural gas comes at a time when it must increasingly rely on more distant and costly supply sources.
• Some governments subsidize local consumption. This stimulates demand for gas and inhibits local exploration with a potentially negative influence on trade balances and carbon emissions.

POLICY IMPLICATIONS

• While full gas industry liberalization in the region is difficult to achieve because of its regional characteristics, the advantages of liberalization suggest that governments should explore its application to their individual situations.
• One major step would be to move from subsidized domestic pricing to a system based on the market value of natural gas.
• Though importing governments may have limited ability to influence the pricing terms of long-term contracts, they need to be sensitive to policy moves that would make their buyers more competitive.

James Jensen is President of Jensen Associates, a consulting firm in Weston, Massachusetts.