Week 4 - Wednesday (News Assignment)

            South Korea's supply of LNG (liquefied natural gas) is under long-term contracts that bonds the price of gas to that of oil. The contracts ensures security of supply delivery and helps finance huge investment for gas projects. However, the contract also keeps the Asian gas prices much higher than in elsewhere in the world: gas price in South Korea is four times that of the United States. The pricing system in Asia can restrict the expansion of natural gas when it is more environmentally friendly than either oil or coal.

            The IEA (The International Energy Agency) recommends that a trading hub to be built in Asia in order for natural gas prices to better reflect gas market in Asia. This will bring about a more integrated natural gas market in Asia; efficient prices will bolster the region's competitiveness. This plan can be put into action if and only if regional governments let the "invisible hand" to work its magic. South Korea, as the world's second-largest LNG importer, can play a vital role in this regard. With Southeast Asia and Australia being the main suppliers, the region's dependence on Middle Eastern oil and its vulnerability to oil price shocks decrease.

            More gas suppliers are being discovered in Asia, along with increase in facilities that ships LNG to regional consumers. In addition, rise of shale gas in the U.S. will reduce American demand for LNG. These trends will be factors that ease price pressure and will bring on change in LNG's status as a marginal and high-cost fuel.

            Next challenge that will remain after pricing concern is competition against cheaper coal as Asia's main fuel. Coal is well-known for destruction of its users' environments; its biggest consumers (China and India) will be forced to turn away from coal and embrace LNG sooner or later.

            Given these circumstances, the outlook for LNG in Asia looks promising as long as conditions for a competitive natural gas market in Asia are established especially pricing reforms. LNG supply chain such as shipping and facilities must be improved as well to support the program. There are encouraging developments in this regard, with plans to build more than 50 LNG terminals in Asia over the next decade. All these improvements will take time, but it will give Korea with a change to assist Asia in adapting to global trends in the natural gas sector.

Bibliography:

"Could Korea Become an Asian Gas Trading Hub?-The Korea Herald." Could Korea Become an Asian Gas Trading Hub?-The Korea Herald. N.p., n.d. Web. 22 Apr. 2013.