The Future of Asia's Natural Gas Market: The Need for a Regional LNG Hub

Executive summary

This article examines how the liquefied natural gas (LNG) market functions in Asia and argues that an opportunity exists for Asia to develop a regional trading hub for LNG.

Main argument

Despite being the world's largest LNG-consuming region and the fastest-growing LNG market, Asia still lacks an LNG trading hub and associated pricing benchmark that reflect the region's gas market fundamentals and send a reliable price signal for imports. Recent changes in the LNG market have improved conditions for the emergence of one or more hub-based prices in Asia as an alternative to oil-indexation, the prevalent LNG pricing structure in the region. In addition, an oversupplied market has created a common need between buyers and sellers to find new ways to trade and finance LNG at a time of demand uncertainty and investment shortfalls. These developments not only would make the LNG market more open, transparent, and competitive by facilitating physical exchanges and hedging but also would bring broader benefits, including greater regional integration, enhanced energy security, and greener economic development. Singapore is well-positioned to serve as an LNG hub, given its geographic position; established trade, legal, and financial ecosystem; and progress toward assuming this role.

Policy implications

• • Easier gas procurement through more transparent prices and open markets will boost the environmental benefits of LNG by increasing its use in large polluted cities and accelerating coal-to-gas switching.

• • A trusted Asian LNG hub and price marker would make regional gas markets more efficient and responsive, which would address government concerns about supply security and help resolve the current investment paralysis among risk-averse utility companies.

• • A regional LNG hub could create greater economic integration and cooperation between Asian countries as it would encourage intraregional trade and infrastructure synergies while setting a shared political agenda to make the fuel more accessible.

Asian nations increasingly rely on imports of liquefied natural gas (LNG) to satisfy their energy needs. The region already represents more than 72% of global LNG demand, and demand is projected to continue to grow strongly through 2040.¹ While the mature industrial economies (Japan, South Korea, and Taiwan) will remain important players with vested interests in reshaping the LNG markets toward greater liquidity and transparency, the future growth in demand will mostly come from the large emerging economies of China and India, as well as from the smaller but booming South Asian economies. Governments are making big bets on LNG as a relatively clean form of energy to electrify their countries, lift their populations out of poverty, and fuel their dynamic economies. As such, they are building infrastructure and implementing reforms in their domestic gas markets. But Asia is far from homogenous, and LNG will play different roles in each country.² For some, LNG is seen as a way to reduce air pollution by displacing coal in power generation and other dirty fuels in cooking, heating, and transportation; for others, it is a quick fix to reduce electricity shortages or replace declining indigenous gas supply.

While Asian countries' dependence on LNG imports is set to increase, the price and security of supplies will decide how quickly the regional market develops. LNG still faces competition as a fuel source in Asia from cheaper coal and increasingly also from cleaner renewables. As a result, LNG will need to be affordable, easy to trade, and secure. Ensuring open, competitive, and transparent LNG markets will be crucial for the fuel to play a lasting role in the region.

This article argues that the creation of an LNG hub in Asia would help achieve these aspirations and support both regional economic integration and energy security. The global LNG market has been transformed by several developments, including the exponential growth of capacity, notably from Australia and the United States, and the rising number of participants. This constitutes a historic opportunity for Asia to develop a trading hub.³ LNG hubs and their associated price references are meant to...