The rise of natural gas and LNG in Asia continues apace, fuelled by a convergence of plentiful global LNG supply, growing demand, moves towards cleaner fuel supply and competitive natural gas pricing. A key part of the equation remains the shape and structure of domestic gas markets: are the economies of Asia well placed to take advantage of this phenomenon? How open and accessible are the Asian gas markets?
Market reform and liberalisation remains a common theme across the continent, with continuing calls by policy makers for greater levels of competition and a more open natural gas trading environment.
Since our article on this topic earlier this year,1 there have been noteworthy developments and key trends, which are explored below in this brief update.
South East Asia
Malaysia introduced the Gas Supply (Amendment) Act 2016 on 9 September 2016 (date of Gazette publication) which came into force on 16 January 2017. The legislation amends the Gas Supply Act 1993 by introducing a system of regulated third party access to natural gas infrastructure. The Act allows new players to apply for licences to carry out activities such as the importation of LNG into Malaysia and the regasification, transportation and distribution of gas.2 A twelve month grace period currently applies whereby the existing players are able to apply for relevant licences in relation to their existing activities.3
The Malaysian Energy Commission (Suruhanjaya Tenaga) is empowered by the Gas Supply (Amendment) Act 2016 to monitor the implementation of third party access and to ensure that access to the relevant facilities is available to new entrants in the market. Several new market participants have commenced discussions with the Energy Commission in respect of the new TPA licensing regime. There are encouraging signs for the early stages of these gas market reforms in Malaysia.
However, the precise details in relation to the fees that apply for new licence applications are not yet clear, particularly whether the fees will be determined on a per MMBtu or fixed basis. Also, the documentation governing the access arrangements has not yet been made publicly available.
Once the new regime is fully functioning and all the costs and contractual arrangements are clear, a key test will be the extent to which effective third party access is achievable on commercially reasonable terms for new market entrants supplying into and within the Malaysian gas market.
A report commissioned by the Royal Norwegian Embassy in Thailand was published in June 2017,4 noting that although third party access reforms have been implemented in Thailand, the state-owned oil and gas company, PTT, continues to hold an effective monopoly over procurement and distribution of LNG.5 Thailand’s declining domestic gas production, coupled with the possibility that Myanmar will not extend existing gas supply arrangements when they expire, means that increasing LNG imports may be key to replacing existing gas supplies. It was announced in September 2017 that PTT has signed an agreement to purchase 2.6 million tonnes of LNG per year from Anadarko’s Mozambique project (in which PTT Exploration and Production holds an 8.5% interest).
There are also a number of potential import projects envisaged in Thailand. Additional import capacity has been added with the recent 5 MTPA expansion at the country’s only LNG import terminal (Map Ta Phut). The Royal Norwegian Embassy’s report notes that all of the capacity at Map Ta Phut is reserved by PTT. It remains unclear, however, how much of the available capacity at the terminal is currently utilised and whether third party access applications have been received by the terminal. An additional 1.5 MTPA expansion at Map Ta Phut is expected to be commissioned in 2019 and is said to be open for bidding “by third party actors.”6
A new onshore terminal in Rayong, which is expected to be online in 2022, has been approved by the National Energy Policy Council (NEPC). And various FSRU projects are being considered: the Electricity Generating Authority of Thailand (EGAT) is conducting a feasibility study to construct a 5 MTPA FSRU terminal to be located in the North of the Gulf of Thailand (a study is to be sent to the NEPC in 2018) and PTT is also studying the potential for a Thai-owned FSRU project in Myanmar (near the Thai border).
All of these potential projects mean Thailand remains a potentially significant LNG market for new entrants, incumbent energy companies and international suppliers. Much will depend on the full implementation of the third party access regime which has been in place for a number of years, together with the development of new gas-fired power generation plants and gas transportation infrastructure across Thailand.7
China is often referred to as the fastest growing LNG market in the world. In the first eight months of 2017, China purchased 22.1 million tonnes of foreign LNG, an increase of 44% on last year, largely provided by Australia and Qatar.8 Sales of LNG trucks in China have surged in the first seven months of 20179 by 540 per cent to nearly 39,000 in the first seven months of this year and it is projected that China will have 400,000 heavy-duty LNG trucks by 2020.10
As we noted in our previous article, whilst much of the current LNG import capacity in China is controlled by the major state-owned enterprises, a number of private companies such as Guanghui Energy, ENN and the Jovo Group have taken the lead in constructing their own LNG import terminals and procuring LNG volumes themselves. Several of these new privately-owned terminals also offer third party access. The Qidong terminal (a joint venture project between Guanghui Energy and Shell) is the latest privately-owned terminal to be commissioned in China (June 2017), a small-scale LNG import terminal which is set to expand its throughput capacity to 3 MTPA by 2019.11 The easing of restrictions for U.S. LNG imports into China means Guanghui Energy has joined the list of state-owned incumbents in seeking supplies from the U.S. During the first five months of this year, China imported 400,000 tons of U.S. gas compared to zero imports in 2016.12
The support of policy-makers in China for liberalising the gas market does appears to remain strong. In July 2017, the National Development and Reform Commission published a “Notice on Opinion of Accelerating and Advancing the Utilization of Natural Gas” (Circular 1217), encouraging private companies to participate in LNG procurement and in developing LNG receiving terminals.13
Whilst the trend to develop additional import capacity continues, at the moment only a relatively low level of existing import capacity is reportedly being utilised,14 bringing into question whether an effective system of regulated third party access is necessary in order to maximise the use of existing terminal capacity.
The election of President Moon Jae-in in 2017 has resulted in a major shift in energy policy in South Korea. Although there had been plans to liberalise the gas market by 2025,15 safety and environmental concerns caused President Moon Jae-in to campaign on a policy platform of moving away from coal and nuclear and increasing South Korea’s share of power generation from gas to 27 per cent by 2030, from current levels of 19 per cent.16
At present, most of South Korea’s LNG import capacity is owned by the state-owned entity, KOGAS, with the exception of POSCO’s terminal in Gwangyang and the recently commissioned Boryeong LNG terminal owned by GS Energy and SK E&S. Private companies are currently only able to import LNG for their own use “after cumbersome negotiations with KOGAS,”17 at a price which does not exceed KOGAS’ long term contract prices. The Korean Ministry of Trade and Industry had previously stated that due to the existing monopoly position in relation to LNG imports, KOGAS and other local companies had no motivation to look for cheaper supplies and respond to market conditions.18
In theory, a third party access regime would address the concerns previously raised by the Korean Ministry of Trade Industry and this may be one option for President Moon’s energy policy development. So far, however, there have been no specific policy announcements from the South Korea government in relation to third party access measures at any of the country’s LNG regasification terminals. Notwithstanding the ambitious objective of the new administration, gas market reform in South Korea may depend on the expiry of existing long-term LNG supply arrangements and the ability and appetite of new LNG buyers to procure replacement supplies for their own use or distribution into the South Korean market.
Japan’s drive to establish itself as a key LNG trading hub in Asia is well documented. The Japanese Ministry of Economy, Trade and Industry (METI) recently hosted the sixth annual LNG Producer-Consumer Conference in Tokyo (2017). The previous conference in 2012 took place at a time when Japan was seeking to lower the premium paid for LNG in Asia and liberalise its energy markets generally. Since then, METI has published its ambitious Strategy for LNG Market Development in May 2016 (as discussed in our previous article) and, more recently, Japan’s Fair Trade Commission has ruled to ban destination clauses in LNG supply agreements and criticised the take-or-pay contract structure that is common-place in long term LNG sale and purchase agreements.
The announcement during the recent LNG Producer-Consumer Conference that Japan will invest US$10 billion to support the expansion of Asia’s LNG markets19 can be seen as a continuation of this strategy whilst simultaneously helping to bolster demand in other parts of Asia and to create a more liquid LNG market. These developments and other recent announcements, such as the cooperation agreement signed with the EU in July aimed at making the LNG market more transparent, are clear indications that Japan is leading the initiative in Asia to develop a more liberalised gas market.
Countries throughout Asia are at different stages of developing regulated systems of third party access to LNG import facilities. Whilst some countries have been debating such measures for a number of years, no country yet has a fully-functioning and effective regulated system ensuring third party access to LNG regasification capacity (although some edge closer).
Perhaps as a result, several trends may be emerging. One may be the emergence of private sector development. The Chinese government appears to be supportive of private companies importing more LNG, and despite the low utilisation of existing infrastructure noted above, private companies have constructed (and in some cases are planning to expand) their own LNG import terminals. The commissioning of privately-owned terminals in other countries (such as South Korea) may further be a sign of the emergence of this trend.
There also appears to be appetite for new LNG import projects in countries such as Thailand and Malaysia, with new market entrants seeking to own or access regasification capacity of their own.
In Malaysia, the introduction of a third party access regime means private companies can utilise existing import infrastructure to gain access to the increasingly short term and liquid LNG supply market. If implemented effectively, this may be a regime that other countries will look to adopt, in addition to encouraging private investment into new terminals where necessary (e.g. to provide gas supplies to secluded markets).
Third party access is commonly cited as a fundamental component of market liberalisation and the creation of a more open, competitive gas market.20 However, gas market reform in Asia remains, for the most part, constrained by the monopolistic and heavily regulated nature of most domestic markets. With natural gas positioned to play an increasingly important role in meeting the region’s growing need for energy, perhaps the solution lies in a more nuanced, market-orientated approach that fuses the interests of new entrants and incumbent players. In other words, a regime in which third party access to LNG regasification infrastructure is more readily available, alongside more opportunities and incentives for the private sector to take a lead in developing new terminal capacity and contributing towards the growth of LNG as a fuel source for the Asia Pacific region.
 Richard Nelson and Kristian Whitaker, “Gas Market Reform: the Advent of Third Party Access in Asia?”,  I.E.L.R., Issue 1.
 Section 11 of the Gas Supply (Amendment) Act 2016.
 Section 46 of the Gas Supply (Amendment) Act 2016.
 Alexander Dodge, “Thailand’s LNG Sector”, June 2017 (last visited, Oct. 24 2017) https://www.norway.no/contentassets/d4f14d1762844a09a9afd167848bfdc9/thailand-lng-report-170626-final.pdf.
 Dodge, pages 8 and 9.
 Dodge, page 33.
 Dodge, page 51.
 Reuters, “China buys rare Norway LNG cargo as spot deals rise ahead of winter”, Oct. 12, 2017 (last visited Oct. 24, 2017) https://af.reuters.com/article/commoditiesNews/idAFL2N1MN0A5.
 GLNG – Global LNG Monitor “China’s LNG Spree Accelerates”, Oct. 19, 2017.
 LNG Journal, “China pushes for growth in LNG transport as numbers rise”, Sep. 29, 2017.
 Mike Corkhill, “When will China replace South Korea as second-largest LNG importer?”, LNG World Shipping, 4 July 2017 (last visited, Oct. 24, 2017) http://www.lngworldshipping.com/news/view,when-will-china-replace-south-korea-as-secondlargest-lng-importer_48330.htm.
 China Daily, “LNG imports soar in first half”, Jul. 25, 2017 (last visited Oct. 24, 2017) http://www.chinadaily.com.cn/business/2017-07/25/content_30232698.htm.
 National Development and Reform Commission, “Notice on Opinion of Accelerating and Advancing the Utilization of Natural Gas”, (last visited, Sept. 26, 2017) http://www.ndrc.gov.cn/zcfb/zcfbtz/201707/t20170704_853931.html.
 Refer to Mike Corkhill’s article referenced above.
 ICIS, “South Korea to Liberalise LNG Imports by 2025”, 16 June 2016 (last visited, Oct. 24, 2017) https://www.icis.com/resources/news/2016/06/16/10008434/south-korea-to-liberalise-lng-imports-in-2025/.
 Financial Times, “South Korea’s energy shift targets increased LNG supply”, (last visited, Oct. 24, 2017) https://www.ft.com/content/fb27d9a4-6547-11e7-9a66-93fb352ba1fe.
 Sammy Six and Anne-Sophie Corbeau, “Third Party Access to Regasification Terminals: Adapting to the LNG Markets’ Reconfiguration”, King Abdullah Petroleum Studies and research Center, February 2017 (last visited, Sept. 26, 2017) https://www.kapsarc.org/wp-content/uploads/2015/10/KS-1760-DP53A-Third-Party-Access-to-Regasification-Terminals-Adapting-to-the-LNG-Markets-Reconfiguration.pdf.
 Platts, “S Korea to allow buyers to bypass Kogas, import LNG directly from 2025”, 14 June 2016 (last visited, Sept. 27, 2017) https://www.platts.com/latest-news/natural-gas/seoul/s-korea-to-allow-buyers-to-bypass-kogas-import-27606159.
 Reuters, “Japan to offer $10 billion to back Asia LNG infrastructure push”, Oct. 18, 2017 (last visited Oct. 24, 2017) https://www.reuters.com/article/us-lng-japan-meti/japan-to-offer-10-billion-to-back-asia-lng-infrastructure-push-idUSKBN1CN01M?il=0.
 For example, see the U.S. Energy Information Administration report, “Perspectives on the Development of LNG Market Hubs in the Asia Pacific Region”, March 2017.