03.08.2009

This log measures the electrical current that occurs naturally in boreholes as a result of salinity differences between the formation water and the borehole mud filtrate (formation and surface). These logs are used as indicators of permeable beds (including determining permeable sands and impermeable shales) or for locating bed boundaries. The SP log was one of the first tools to be used to distinguish shale from sand in clastic sequences (zero matches pure shale while high SP values match sand)

If one examines the spectrum of fuels for power generation, in terms of flexibility of use and pollution, then coal is visibly the least flexible and most problematic of fuels, whilst the most flexible is gasoil / diesel, in the middle of the market we have fuel oil and natural gas. In the span of flexibility heavy fuel oil is a commodity which is relatively flexible and in the mid range price wise but potentially the most polluting and is therefore a good average priced fuel on which natural gas can be based. This is the reason why so many natural gas contracts around the world are based on heavy fuel oil or rather on a discount to heavy fuel oil (at around 80% -85% discount of fuel oil). From the seller’s point of view, natural gas is in fact nearly the most comparable to gasoil/diesel in terms of its capabilities, but from the buyer’s point of view since gasoil/diesel is used more for the mobile locomotive market than natural gas, therefore gasoil has greater flexibility and thus can fetch a premium over natural gas (since there is tremendous demand for gasoil and since at the end of the day natural gas cannot readily power a fleet of trucks). The price of gasoil should thus be higher than that of natural gas. Fuel oil is not as attractive as natural gas as it has more imperatives, more maintenance requirements; therefore in principle natural gas should be higher priced than fuel oil. However, fuel oil has the advantage that it is an international traded commodity and therefore it has a premium for this value, whilst natural gas suffers from not yet being internationally traded. LNG should be priced the same as fuel oil or even higher as it is internationally traded and more flexible than fuel oil, but this is not yet the case. Pipelined gas, however, has higher restrictions on its use and marketability and is thus tended to be priced at 80% of fuel oil. Indeed, gasoil can be more readily shipped to its destination than natural gas can, via a large network of oil tankers that can easily bring the fuel on demand to high consumption markets that are continuing to grow such as China. In these regions, natural gas pipelines are also less developed with a large majority of the pipelines feeding the European and US markets. Oil can also be stored easily which enables to implement a national energy policy and enables the greater use thereof during times when prices are lower. In the US, for instance it is possible to store up to 6 months worth of consumption of oil. Natural gas is used to a great degree for heating in the winter (in the northern hemisphere) and for industry as a source of energy or as a feedstock in the chemical and fertilizer industries, whilst again gasoil is used mostly for locomotion. In times of crisis, when the price of oil remains high and that of natural gas is lower per mmbtu, it is often because industry tends to be affected more severally than the use of cars. In addition, the secondary market for oil is more developed than that for natural gas which still relies more on long term contracts. Another important difference between oil and gas is that the oil exporting countries are united by a strong cartel which helps them to maintain prices at a certain level, whereas this is still non existant in the natural gas sector. Of course, natural gas enjoys a significant advantage in it being a more environmentally friendly fuel, and as countries will tend to implement stricter environmental and carbon control laws and taxes, natural gas has the propensity of growing more in importance.

Ten times the logarithm to base 10 of the ratio of the mean square pressure of the portion of sound within a specified frequency band to the mean square pressure of the portion of a reference sound within the same frequency band

Solar architecture integrates elements which passively and/or actively use solar energy and it combines these principles with measures to prevent heat loss. Its goal is either plus zero or low-energy buildings

A mooring system utilizing a single anchor base and single riser, designed to operate as an unmanned marine terminal

Asian gas hub

Rising liquidity in LNG derivatives has important implications for the evolution of an Asian gas hub. It suggests the Asian gas market will develop differently to the US and Europe, even if the emergence of a dominant Asian gas hub appears to make sense as a counter point to its US and European equivalents.

This should not be surprising because the Asian gas market is much more fragmented than the gas markets of the US and Europe, spanning multiple unconnected national markets as different stages of liberalisation and with very different regulatory regimes. The concept of an ‘Asian’ gas market only really makes sense if thought of in terms of LNG trade because it is LNG that can be arbitraged between Asian national markets, as well as between the Atlantic and Pacific basins. In Europe and the US, LNG is an adjunct to existing markets based around pipeline supply.

There are nonetheless three main contenders hoping to fill the role of Asian gas hub – Singapore, Japan and China.

Singapore has a cluster of trading companies, a well-developed financial community and an open liberalised market. It could provide independent regulation and arbitration and non-discriminatory third-party access to infrastructure, but it is a small market in physical terms. It has no domestic gas production to speak of and consumed 12.3bn m3 of gas in 2018, sourced primarily by pipeline from Indonesia, as LNG and a smaller proportion by pipeline from Malaysia.

Japan also has strong advantages but also some important disadvantages, first among which is that its gas market, while large, is not well integrated. Pipelines connect import points with local markets rather than forming a national gas system. In addition, the Japanese market is not expected to grow over the long term as the expansion of renewable energy sources and the return of nuclear reactors eats into gas’ share of power generation.

Japan also has no significant gas production of its own and no international interconnections for pipeline gas trade. The Japanese market is going through a process of liberalisation, and liquid gas hubs have historically emerged after rather than before liberalisation, but this may not be enough to foster anything more than localised gas trade at the wholesale level.

China offers much more in terms of both interconnections and market growth. Gas demand, including for LNG, is rising rapidly and the country is expected to overtake Japan as the largest market for LNG imports globally. Chinese LNG imports grew by 38.8% in 2018.

It also has multiple international interconnections, receiving pipeline gas from Myanmar, Central Asia and by the end of this year, if the Power of Siberia pipeline is completed on time, from Russia. It is also a major producer of gas in its own right; China produced 161.5bn m3 of gas in 2018, while consuming 283bn m3, importing 73.4bn m3 as LNG and 47.9bn m3 by pipeline, according to BP data.

However, the Chinese market remains dominated by large state companies and third party-access to infrastructure is limited, not just at LNG terminals but inland. The Chinese market is insufficiently liberalised to support the development of a regional gas hub, while concerns about market access, the continuity of energy policy and availability of independent arbitration also detract from its suitability.

Derivatives solution

The lack of an obvious candidate creates a vacuum which LNG derivatives hope to fill, but there is more to their potential for success.

LNG is the glue which binds fragmented Asian gas markets together and the primary means of price transmission. Access to domestic gas infrastructure, such as import terminals, storage and pipelines is not necessary for a commodity delivered by ship because there is no system balancing requirement. LNG carriers are the LNG market’s transportation system and the market for LNG carriers is open.

Even if the end markets lack liberalisation, there is sufficient diversity of buyers from multiple national markets to create active competition in wholesale LNG trade in Asia.

There is also no problem with a lack of a specific physical delivery point as Henry Hub, the NBP and TTF show – they are all systems rather than individual points for delivery.

As LNG supply becomes more flexible and less tied to oil indexation, and as markets like Japan liberalise their domestic markets, creating direct price risk between local and international markets for importers, the need to hedge LNG sales and purchases grows.

Asian gas markets – Japan, South Korea, Taiwan — are dominated by LNG trade. The newer participants – China, India, Pakistan and Bangladesh – import or will import enough LNG to make the Asian price of LNG a key element of domestic pricing.