Shanghai, China, would be a natural geographic and market position for a natural gas hub in Asia, according to Laurent Maurel, Total senior vice-president for strategy, marketing, and LNG, who also acknowledged that “it won’t be that simple” to establish such a hub there or anywhere else in the near term. Maurel made his remarks as part of his presentation “Midstream Gas Monetization,” delivered May 7 at the Offshore Technology Conference in Houston.
Maurel noted that an alternative to oil indexation of long-term natural gas prices was needed in Asia and that a regional hub with sufficient infrastructure, a diversity of supply, and multiple end-user access points could provide just such an alternative. He described other potential alternatives like the Japan-Korea Marker as illiquid and higher at times recently than the region’s long-term contracts and the Henry Hub price point as too volatile to meet buyers’ interests. A liquid physical gas hub in the region, however, could give project financiers the price stability currently provided by oil-indexed contracts, Maurel said, and at the same time decouple its gas prices from crude.
World demand for natural gas will rise 2%/year, according to Maurel, with Asia leading the way at 4%/year growth. In absolute terms, demand will increase from 2,944 billion cu m (bcm) in 2010 to 4,640 bcm in 2030, he said, with Asia’s share of demand increasing to 27% from 18% over the same period. The growth in Asian demand would come at the expense of Europe and the former Soviet Union, in which the share of global demand move to 15% from 19% and to 14% from 20%, respectively. The decline in Europe will happen by 2020, he projected, with environmental regulations and the continued phase out of nuclear power working against further erosion after that.
Maurel saw LNG imports into Asia roughly equal to regional gas production as supply sources in 2010, and expected this to remain the case in 2030 even as pipeline imports’ share of regional supplies grew. He noted, however, that natural gas prices remain regional, and that this could pose problems for potential US exporters. A combination of oil-based Asian prices easing between now and May 2020, and US export delivered basis prices rising once exports start in May 2016, could see the margin for US suppliers dwindle, he explained, showing a graphic in which they began to converge near $13/MMbtu.