Gas and LNG trading hubs, hub indexation and destination flexibility in East Asia

Xunpeng Shi and Hari Malamakkavu Padinjare Variam

Energy Policy, 2016, vol. 96, issue C, 587-596

Abstract: In the East Asian gas markets, issues like gas trading hubs, hub indexed pricing, and destination flexibility are being debated. This paper examines the impact of a change in East Asia's pricing benchmark and contract flexibility on the regional and global gas markets. The paper uses the Nexant World Gas Model, a linear program with global cost minimization as the objective. To our knowledge, this study on hub competition, price benchmark change and contract flexibility improvement in East Asia will be the first in the literature and have real policy relevance. The results show that both price benchmark change and contract flexibility improvements will create an overall benefit for the world and East Asia importers, but the impacts are different among exporters and importers. However, there is no evidence of competition among different benchmark hubs and no evidence that destination restrictions cause the “Asia Premium”. It implies that removal of destination clauses has higher priority than the change to hub indexation for Japan, Korea and Chinese Taipei, but both should be treated equally in China. The study also suggests that East Asian importers should cooperate among themselves and with exporters to facilitate the hub creation and contract changes in East Asia.

Keywords: Natural Gas; Trading Hub; Oil indexation; Destination Clause; China; Japan (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (40)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:96:y:2016:i:c:p:587-596

DOI: 10.1016/j.enpol.2016.06.032

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