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Concept of Asian LNG hub to be realised in 10-15 years

LNG
 

Under the direction of METI, development of an LNG hub is moving forward in Japan. However, necessary conditions are not in place for an Asian LNG hub yet, says Dr. Fereidun Fesharaki, Chairman of FGE.

 

[DS] Outlook on energy policies under the Trump administration

  • President elect Donald Trump supports the oil industry in the U.S.
  • Policies he can carry out will be limited for the time being to things like tax relief.
  • Polices to allow development of federal areas, which has been closed for environmental reasons, will be the key.
  • He supports increase in oil production in the U.S. but is also seeking increase in oil price which is contradicting.
  • What’s clear is that he supports fossil fuel and opposes renewable energy.

 

LNG hub in Japan is unrealistic

[DS] METI reiterated its aim in developing an LNG hub in Japan before mid-2020s during the LNG Producer-Consumer conference in November.

  • Dr. Fesharaki supports the idea of an LNG hub but its time has not come. It will likely take another 10-15 years to develop and it may not necessary be in Japan.
  • There are a few conditions needed for an LNG hub
  1. Liquid market – still all the contracts are long-term contracts.  Liquidity is a big issue.
  2. Pipeline infrastructure – Every hub is driven by pipeline.  There is no hub in the world created by LNG; the US and Europe are all pipeline driven.
  3. Global market environment – Japan is not a global market.  PM Abe claims Japan is open to foreign entities but in reality is not. Japan is the only place where a SIM card cannot be purchased at the airport.
  • On other candidates for a hub
    • Singapore is better located than Japan but their LNG demand is so small.
    • China has the most suitable conditions; pipeline gas from three regions, LNG from six regions, and domestic production is high.  However, market participants don’t trust the government.
  • The conditions in Asia differ vastly from that of Europe, including geography.  In Europe, we can drive from one country to another in two hours.  In Asia, Japan to Singapore takes seven hours by flight.  There is no pipeline system.  Even if an Asian LNG hub is to succeed, it will take at least a decade. It will be 2026 even if the development begins right away.
  • Indeed, development of NYMEX and Henry Hub similarly took a long time.  So it is a mistake to think that you can create it and make it work quickly.
  • Many of the long term LNG contracts with Japanese utilities will face renewal period in 2019.  Banks will need to understand the pricing mechanism to finance the contracts. It will likely consist mostly of oil linked, Henry Hub linked or spot contracts.  There are currently no players trading with an Asian hub pricing. This alone indicates that an Asian LNG hub is unlikely to function in just a few years’ time.

 

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