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As with many natural gas markets around the world, Asian gas
markets typically developed as natural monopolies, built around
national or private incumbent players that control supply and
infrastructure in their home markets. Asian natural gas incumbents
often manage the country's energy procurement needs, build
infrastructure to support, and even develop and participate in
their country's energy policy planning. Consequently, these
companies have adopted vertically integrated business structures
and dominated their respective gas markets across gas value
chain.
However, as the markets become more developed, governments
across Asia are now looking for ways to improve efficiency and
increase competition, starting with midstream reforms. The stage of
gas market liberalization varies by country owing to differences in
regulatory structure and local market conditions. Markets that
experienced shock event typically push through market reform more
aggressively. For instance, Japan opened the market to competition
after the Fukushima nuclear disaster in March 2011 and plans to
unbundle its pipeline network by 2022. Markets that rely on 100%
imported gas such as South Korea, but did not go through shock
events like Japan, are slower in implementing gas market reforms to
ensure security of fuel supply at manageable costs.
Figure 1: State of gas market liberalization in Asian
economies.
Regulators in Asia's midstream gas market commonly employ two
approaches for midstream reform. The typical method is the
introduction of non-discriminatory third-party access (TPA) to gas
infrastructure. However, in practice, usage of TPA is either very
low or virtually non-existent in most Asian gas markets owing to
midstream infrastructure's physical constraints and incumbents'
resistance. Some Asian regulators have also required incumbents to
unbundle their infrastructure business from their fuel procurement
business to break their market dominance enabled by their
vertically-integrated structure.
Although off to an encouraging start, next steps are required to
drive midstream gas market reform, including setting liberalization
process deadlines and continuing price reform. In the meantime, new
investment opportunities are available with markets undergoing
midstream reform. These could range from investing in new
infrastructure that unlocks gas demand, to supplying LNG to new
customers, and new trading opportunities through the development of
hubs and financial derivatives.
Clients can view the full strategic report on midstream
reforms in Asia's gas markets on Connect.
