Singapore to liberalize gas market to bolster Asia LNG trading hub plans

Credit: Creative Commons/Falcanary

Credit: Creative Commons/Falcanary

Singapore is set to liberalize its gas markets by increasing consumer demand at domestic levels. Until now, Singapore is regarded as the trading hub of LNG because important shipping routes from Australia, China and Japan converge at Singapore. The LNG trade in Asia accounts for nearly 70 percent of worldwide consumption.

Due to the potential of future LNG demand, Singapore needs to establish consumer demand if it wants to fend off challenge from Japan and China, who are also looking to establish themselves as the future hub of LNG. Experts at the recent, Singapore International Energy Week, suggested that the lack of local demand is likely to hurt Singapore because majority of gas is bought using bilateral contracts. As 90 percent of the electricity in Singapore is produced from gas, it is also important to create a benchmark for Asian markets that rely on oil-linked pricing.

Currently, there is no established benchmark for gas prices in Asia. Most contracts are a mix of oil, price reporting agency evaluations and regional contracts making it very difficult to set a price of LNG. As a result of these complexities, reliance on oil-linked prices provided guidance to experts. Perhaps, it is time for Singapore to take the initiative of establishing LNG benchmark and developing local demand.

Attending the International Energy Week, Singapore’s Minister of Energy openly claimed that Singapore is ready to develop its domestic markets for LNG after assessing gas trading in various European markets. If Singapore fails to deliver, chances are that Japan will ultimately succeed in becoming a global hub of LNG. Japan is fully liberalizing its domestic electricity market, next year. Even China is quickly becoming a threat to Singapore goals as China has large LNG import terminals and pipeline. However, Chinese market is still in infancy, which may take a long time to reach its full potential.

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