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Oil-linked pricing continues to dominate

Asian gas market in 2021: IGU

POLICY OIL-LINKED pricing continued to dominate at market prices by upstream producers to large
the Asian gas market in 2021, accounting for users in the power and industry sectors.
Oil-linked pricing 65% of total consumption, the IGU said in its The remainder is regulated pricing, includ-
continues to dominate Wholesale Gas Price Survey 2022 report released ing Regulation Cost of Service (RCS) pricing,
the Asian as market, in last week. However, the union stressed in the which has a share of 12%, and includes 40 bcm
contrast to Europe. report that gas market-based prices were more of domestic production in China and 19 bcm of
effective at ensuring markets enjoy flexible sup- domestic supply in Bangladesh.
ply when they need it. Shifts in price formation mechanisms in Asia
The IGU defines oil price escalation (OPE) have been dominated by changes in China and
pricing as formulas whereby “the price is linked, India, according to the IGU. Over the past 14
usually through a base price and an escalation years, the share of OPE has risen from around
clause, to competing fuels, typically crude oil, 35% to 65%, largely at the expense of regulated
gas oil and/or fuel oil.” Around 338 bcm of the pricing and bilateral monopoly (BIM) pric-
gas consumed in Asia is still priced according to ing, which is fixed between a large seller and a
OPE, out of a total of 517 bcm. larger buyer over an extended time. The shift
According to the IGU, dometic production from BIM to OPE pricing is largely the result of
and pipeline and LNG imports in China account pricing revisions in Qatar’s LNG contract with
for the biggest share of OPE pricing, along with India between 2007 and 2009, and more recently
a small volume of domestic production in India, the launch of Turkmen gas supplies to China in
and LNG imports and domestic supply in Paki- 2010, which are all oil-indexed. There was also a
stan. In contrast, so-called gas-on-gas (GOG) shift towards OPE in domestic pricing in China.
pricing, when the price “is determined by the GOG pricing has also made gains, increasing
interplay of supply and demand – gas-on-gas its share to 13.5% as a result of reforms in India,
competition – and is traded over a variety of dif- and then expanding to 14% in 2017 and 17% in
ferent periods” only has a share of 22% in Asia, 2018, thanks to increases in spot LNG purchases
or 115 bcm. It is mostly domestic production in in India and China. GOG pricing has seen fur-
India, reflecting mainly hub linked pricing for- ther growth at the expense of OPE due to further
mulas, as well as spot LNG imports into India, increases in spot purchases since then. In 2021,
China and Pakistan, and domestic production both GOG and OPE pricing increased at the cost
in China, where coalbed methane is sold directly of regulated pricing in China. ™

P6 www. NEWSBASE .com Week 40 10•October•2022