Abstract
The liquefied natural gas (LNG) market in Asia is facing a paradigm shift as the demand for natural gas as an energy resource increases and the complexity of the trade market intensifies. Traditionally, LNG has been traded via oil-linked long-term contracts which today have become increasingly irrelevant. The market is trending towards shorter term contracts and spot trading as buyers gain power in the oversupplied market. Furthermore, natural gas no longer competes directly with oil which has been left out as a main source of fuel in the power generation sector. The oil-indexed prices no longer reflect the true supply and demand conditions of the natural gas market in Asia. With the increasing importance of LNG and the need for a better price discovery mechanism, the current industry urges for the formation of an LNG trading hub in Asia. In the midst of the changing LNG market dynamics, several regions have established hubs that aim to trade LNG more effectively, with Singapore and China as two of the top contenders for the Asia’s LNG hub title. This thesis seeks to understand the changing dynamics of the Asian LNG market and compare Singapore and China on how well they meet the conditions to become a leading LNG trading hub. The analysis results are based on insights gathered through the 16 interviews conducted with industry professionals both in Singapore and China, as well as through analyzing information from secondary sources. Singapore is assessed to be more progressive in its pursuit to be Asia’s LNG trading hub. It has favorable conditions including being situated in a strategic location along energy trade routes, having an open-access LNG terminal, separate transportation business from commercial activities, deregulated pricing model and a pro-business environment. Nonetheless, China is reforming its gas market to become more liberalized, competitive and transparent. Being a huge natural gas consumer, China is a formidable competitor and its success of forming a natural gas hub will depend on how fast it can restructure the industry. It is likely to have several trading hubs co-existing in the region and both Singapore and China will play major roles in shaping the Asian LNG market.