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Prospect of Asia-PacificNatural Gas Trade Mechanism
Dr. Zhang HongminDirector, Shanghai International Energy
Exchange (INE)Jul. 16th,2015
Current Status of Asia-Pacific Natural Gas Trade1
INE’s Efforts in Building Natural Gas Market3
The Development of China’s Natural Gas Market2
Prospect of Asia-Pacific Natural Gas Trade Mechanism
4
3
1.CURRENT STATUS OF ASIA-PACIFIC NATURAL GAS TRADE
1.1The Proportion of Global LNG Spot Trade Increases Steadily
4
Source: Argus,GIIGNL
1.2 Asia-Pacific Accounts For More Than 70% of The Global LNG Imports
5
China:185.5Billion cubic meters
Japan:112.5 Billion cubic meters
Korea:47.8 Billion cubic meters
Asia Pacific main NG consuming countries and their source structure：
LNG IMPORT LNG IMPORT
Domestic LNG
Imported PNG
Domestic PNG
Imported LNG through truck
Tank
Imported LNG through pipe
1.3 Futures Becomes Price Benchmark for Global Commodity Trade
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•CME CBOT•Soybean(ZS)•Soybean Meal(ZM)•Corn(ZC)
AgricultureBenchmark
• LME• Copper(LCAD)• Nickel (LNID)
• CME NYMEX• Copper(HG)
• SHFE• Copper(CU)
Nonferrous Metals
Benchmark
• CME NYMEX• WTI (CL)• HH NG(NG)
• ICE Europe• Brent Crude(B)• UK Natural Gas (M)
EnergyBenchmark
• CME COMEX• Gold(GC)• Silver(SI)
Precious Metals
Benchmark
Pricing formula: P=A+D P is trade price, A is benchmark price, D is premium /discount
7
1.4 Lack of Oil and Gas Benchmarks in Asia-Pacific
CMENYMEX
ICE
SHFEINE
TOCOM
DME MCX
RTSSE
SGX
Crude oil market: WTI for North America, Brent for Europe, Dubai/Oman Average Price for Asia Pacific??
Natural Gas: Henry Hub NG for North America, NBP for Europe, JCC Linked Price for Asia-Pacific??
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2.THE DEVELOPMENT OF CHINA’S NATURAL GAS MARKET
2.1 China Natural Gas Market Scale
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Indonesia
Algeria
Saudi Arabia
Norway
China
Canada
Iran
Qatar
Russian
US
- 100.0 200.0 300.0 400.0 500.0 600.0 700.0 800.0
73.4
83.3
108.2
108.8
134.5
162.0
172.6
177.2
578.7
728.3
Source: BP
BcmBig NG Producers of Year 2014 (Bcm)
UAE
Germany
Mexico
Canada
Saudi Arabia
Japan
Iran
China
Russian
US
0.0 100.0 200.0 300.0 400.0 500.0 600.0 700.0 800.0
69.3
70.9
85.8
104.2
108.2
112.5
170.2
185.5
409.2
759.4Bcm
Source: BP
Big NG Consumers of Year 2014 (Bcm)
Italy
China
US
Germany
Japan
- 20.0 40.0 60.0 80.0 100.0 120.0 140.0
46.9
31.3
74.6
85.0
4.5
27.1
1.7
120.6
PipelineLNG
Bcm
Source: BP
Big NG Importers of Year 2014 Bcm
The world’s sixth producer(134.4 Bcm)
The world’s third consumer(185.5 Bcm)
The world’s fourth importer(58.4 Bcm)
2.2 NG as Minor Fuel in China Energy Mix Suggests Bright Outlook with Strong Growth Potential
10Source： BP, State Statistical Bureau of the PBRC
Oil36.37%
Natural Gas30.25%
Coal19.72%
Nuclear Energy8.26%
Hydro electric2.57%
Renew- ables2.83%
USA
Oil17.51%
Natural Gas
5.62%
Coal66.03%
Nuclear Energy0.96%
Hydro electric8.10%
Renew- ables1.79%
China
Oil32.57%
Natural Gas23.71%
Coal30.03%
Nuclear Energy4.44%
Hydro electric6.80%
Renew- ables2.45%
Worldwide
2008 2009 2010 2011 2012 2013 20140.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
180.00
200.00
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
Production Apparent consumption Production YoY Apparent consumption YoYBcm
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Source： General Administration of Custom of the PBRC
2.3 Diversified China NG Supply Sources
2.4 Improving Domestic Infrastructure
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Existing Multiple Long-distance Pipelines
Existing China-Myanmar and Central Asia Pipelines for Import
Sino-Russia NG Pipeline is under construction
Total 13 LNG terminals are in operation
Theoretical receiving capacity reaches 41 million tons per year
3.5 Market-Oriented Reform Is in Progress
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The reform of the economic system is key to comprehensively deepening reform. The core is to proper relationship between the government and the market to let the market play the decisive role in allocation of resources with best support from the well-functioned government.
“Decision on Some Major Issues Concerning Comprehensively
Deepening Reform ” by Central Committee of the Communist Party of China
Nov-2013
Oil and gas pipeline network facilities operators shall, when capable, equally open their pipeline network facilities to third-party market players, and provide services of transportation, storage, gasification, liquefaction, compression, and etc..
“Pilot Measures of Supervision and
Administration of Fair and Open Oil and Gas Pipeline
Network Facilities”Feb-2014
Support non-governmental or local state-owned business investment on construction of oil and gas pipeline, seashore LNG terminals, storages and other facilities. To facilitate the reform of NG price formation, we target on paralyzing prices between the average used NG over the past 1 year and the YoY incremental NG supply …… We are working on policies of forming the official PNG price.
“Instructional Views of Innovative Investing &
Financing Mechanism on key Areas to Encourage
Social Investment” by State Council
Nov-2014To parallel the average used NG over the past 1 year and the YoY incremental NG supply by raising city-gate prices by 40RMB/cubic meter for average used NG over the past 1 year , meanwhile lowering down the YoY incremental NG supply price by 440RMB/cubic meter so that Natural Gas Price for Non-PR Notice can be streamlinedTo pilot the Market-Oriented Reform, the city gate price for Industrial users (except fertilizer producers) shall be negotiated bilaterally
“Streamline Natural Gas Price for Non-PR Notice”
2015.3
Since 2013, the China market has undergone significantly changes, especially the deregulation impacts the market dramatically.
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3. INE’s EFFORTS IN BUILDING A NATURAL GAS MARKET
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3.1 Location Advantage for Transportation
A natural gas pipeline system connecting to the 16 states of the United States.
Cover the East Coast, Gulf of Mexico and Central and Western regions.
Henry Hub
The geographical center of Southeast Asia, Northeast Asia and Central Asia
Middle point of LNG transportation to the Middle East, Southeast Asia, Northeast Asia, Central Asia, and even North America
Shanghai
3.2 Significant Financial Market Development
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International Financial Hub
China (Shanghai) Pilot Free Trade
Zone
3.3 Enhancing Globalized Market Platform
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The Shanghai International Energy Exchange is launched on November 22, 2013!
The Shanghai International Energy Exchange Corporation, or INE, is a global exchange that operates regulated derivative marketplaces in crude oil, natural gas and other petrochemical products and provides clearing, delivery, information distribution and technology services.
Approved by the China Securities Regulatory Commission, INE is fully funded by the Shanghai Futures Exchange and the Shanghai Futures Information Technology Company.
3.4 Allow Overseas Traders Engage in Trading Specified Domestic Futures Products
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Crude Oil Futures as The First Specified Futures Product Open to World
The term “overseas trader” as used in these Measures shall refer to a legal person or other economic organization duly established outside the jurisdiction of the PBRC, or a natural person legally possessing non-PBRC citizenship, and who that engages in futures trading and is liable for the consequences of such trading.
The term “overseas intermediary” as used in these Measures shall refer to a financial institution duly incorporated outside the jurisdiction of the PBRC that is qualified to accept funds and trading orders from traders and conduct futures trading in its own name, and who is approved to do so by the futures regulatory authorities of its host country (or region).
Where a legal person or other economic organization established in Hong Kong Special Administrative Region, Macao Special Administrative Region or Taiwan Region, or a natural person with resident identity of Hong Kong Special Administrative Region, Macao Special Administrative Region or Taiwan Region, engages in the trading of specified domestic futures products, these Measures shall apply.
“Interim Measures for the Administration of Overseas Traders’ and Overseas Brokers’ Engagement in the
Trading of Specified Domestic Futures Products”Order #116, CSRC
Jun.26th,2015
3.5 Global Participation on the INE
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Crude Oil原油
INE能源中心
Domestic Futures
Firm Members境内期货公司
Overseas Special Non-Brokerage Participants
境外特殊参与者（非经纪）
Overseas Special Brokerage 境外特殊参与者（经纪）
2
3
4Overseas Futures
Intermediaries境外中介
Overse
as In
vesto
rs
境外投资者
5
1
Domestic Futures
Firm Members境内期货公司
Domestic Non-Futures
Firm Members境内非期货公司
境内投资者
Dom
estic In
vesto
rs
3
44
5Overseas Futures
Intermediaries境外中介
5
IB
（ Sub-Brokerage)再委托（二级代理）
Five Global Participation Modes：Access #1- Apply to the Exchange as an Overseas Special Non-Brokerage ParticipantsAccess #2- Apply to the Exchange as an Overseas Special Brokerage Participants and provide their clients (overseas) direct access to trade the crude futures with using Domestic FF members as carrying brokersAccess #3- Overseas investors may open futures account with domestic FF membersAccess #4- Overseas Futures Intermediaries may open omnibus accounts with domestic FF members Access #5- Overseas Futures Intermediaries may enter in an IB agreement with domestic FF members
3.6 Missions need to be Achieved to be Open and Fair Market
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**Third Party: A non-governmental party that may participate in the NG market
Oligopoly SOEs still dominates the production and supply chain, and which impacts the free trade negatively as NG trading relies heavily on terminal facility
Broad implementation of third party*participation policy will take time
Lack of natural gas storage facilities. Issues like high loss of gasification and storage cost need to be solved
Terminal is mainly used as product transition, rather than storage
PNG or LNG?
21
4. PROSPECT OF ASIA-PACIFICNATURAL GAS TRADE MECHANISM
4.1 Promote Facilities Sharing Among Asia Countries and Fasten Domestic Market Opening
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33 Terminals in Japan
Incheon, Pyongtaek, Tongyeong Terminals in Korea
Domestic 13 Terminals, receiving capacity of 41 Mt per year
Jurong Terminal in Singapore
Taichung, Yonhap Terminals in Taiwan
4.2 Build a Multi Natural Gas Trading Market
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FUTURES
SWAP
FORWARD
SPOT
4.3 Develop NG Benchmark Price for Asia-Pacific Region
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