Customer Logins

Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.

Customer Logins

China faces challenges in developing international gas hub: Beijing Gas Group

17 March 2021 Bernadette Lee

While the Chinese government aims to develop Shanghai and Chongqing into pricing hubs for the natural gas market, it faces a host of challenges, notwithstanding the advantages it has, said a senior official of Beijing Gas Group.

During a panel discussion on the liberalization of Asian gas markets at the CERAWeek by IHS Markit conference, Jun Bai, vice president, research institute at Beijing Gas Group, said China's diverse sources of gas supply and its ability to produce a wide range of gas types, are important factors that will stand it in good stead as it seeks to develop pricing benchmark. Beijing Gas Group is a gas producer and distributor.

China is one of the world's largest natural gas importers, as gas demand has been growing at about 20 billion cubic meters per year over the last five years. With that growth expected to continue for the next two decades, it will soon become the largest import market in the world.

The liberalization of the Chinese gas market, beginning with the spin-off of state-owned assets, namely oil and gas companies, and the setting up of a company, National Oil & Gas Pipeline Network Group, now known as PipeChina, will further aid the country in its pricing benchmark efforts, Bai said.

But at the same time, China faces a host of challenges which must be addressed for the country to become a pricing hub, Bai said. These include the need to further liberalize its gas market, and the lack of transparency with some infrastructure companies in terms of how they allocate capacity and disclose operational data.

Transparency in the form of timely data on China's gas industry, particularly production, trading, and storage-related data, is essential, as is transparency in price and trade reporting, Bai said. Other areas that China needs to further improve include financial and legal-related issues. "These are the key issues that China faces if [it] wants to make Shanghai or Chongqing a major regional hub. Shanghai and Chongqing also have to do their own work [in terms of] how to make [themselves] attractive places to market players," he said.

Currency, liquidity, rules and regulations

Developing China's gas market into a pricing hub hinges on its currency, the ability to generate liquidity, and its rules and regulations, said Denis Bonhomme, vice president LNG, China, Total, who sat on the same panel.

The US and Europe have been able to turn their respective gas markets into international pricing hubs largely because of the market liquidity and transparency they offer.

"The Chinese authorities clearly want to develop a pricing hub, particularly in Shanghai and Chongqing, and it has started to launch pricing hubs [in these cities], which is extremely helpful… For transparency, you need to [allow everyone to] have the same access to information, and this is [just] starting now in China. Liquidity is when the market needs to mature. China is huge and it is dependent on the state. These are the challenges these cities face if they were to develop into true Chinese [pricing] hubs," he said.

China began its gas market reforms a few years ago and significant progress has been made, particularly in price deregulation, third-party access, and in unbundling its infrastructure, according to an International Energy Agency report. The reforms are designed to increase competition among gas suppliers in ensuring resource allocation is efficient.

China has also established pilot gas exchange centers aimed at instituting a market price index.

Launch of first gas exchange in India

India, which has also begun gas price liberalization, launched its first gas exchange, the Indian Gas Exchange (IGX), on 15 June 2020. The aim, according to another panelist, Tarun Kapoor, secretary of India's Ministry of Petroleum & Natural Gas, is to develop an open gas market.

This comes as Prime Minister Narendra Modi has set a goal of increasing the share of gas in the energy mix to 15% by 2030, compared with the current approximately 6%.

"We expect large quantities of gas currently used in India would get bought on the exchange. Maybe we could start with 10%. That would be a good beginning. … Some transactions have started on the gas exchange, and we expect the volumes to grow as we move along," Kapoor said.

The Indian gas market consists of mostly large buyers such as fertilizer plants, refineries, and power plants. At the moment, most of the gas is sold through long-term contracts.

As the gas market matures, people who buy gas in the short term or even spot market may meet their demand for gas by switching fields, or they may give up some of their excess gas which will in turn get picked up by another party.

As part of its market liberalization efforts, the Indian government has also allowed domestic gas transactions that take place on the exchange to be determined by market price rather than prices set by the government, according to Kapoor. "We have this provision in our rules for domestic gas sales [which states] that sales are made [based] on prices determined through an open market mechanism. This exchange could help to determine market price and also bring in transparency. As I mentioned earlier, short term sales can be made so much easier," he said.

The IGX is expected to improve price discovery for gas as well, he said.

Posted 17 March 2021 by Bernadette Lee, Principal Journalist, Climate and Sustainability, OPIS, IHS Markit

Explore

Follow Us

Filter Sort