Natural gas production and consumption are increasing globally and Asia is the fastest growing natural gas market, but the commodity’s price is still largely dictated by long-term contracts indexed to oil. The relationship between oil and natural gas prices has disconnected and the spread has widened to historic levels, which puts Asian economic competitiveness at risk warns the IEA in a new report titled “Developing a Natural Gas Trading Hub in Asia – Obstacles and Opportunities.”

While natural gas trading hubs are being developed in developed continental European markets, a similar transformation has yet to occur in Asia. “Prospects for a competitive wholesale natural gas market in Asia are limited,” the IEA says, and obstacles include the limited amount of pipeline-traded gas – and thus a reliance on LNG – as well as governments that “emphasize security objectives over economic ones.”

The report analyzes several regional and national markets, LNG contract structure and the fundamentals of price formation in an effort to determine the requirements needed to establish an Asian gas trading hub.

The full report can be downloaded with this post and by clicking here.