ShareCONTACT: B.J. AlmondPHONE:(713) 348-6770EMAIL: [email protected]: Lia UnrauPHONE: (713) 348-6778EMAIL: [email protected] GAS EXPECTED TO PLAY INCREASINGROLE IN ASIA, U.S.Findings Reported by Energy Forum, Baker Institute forPublic Policy at Rice UniversityNatural gas is expectedto play an expanding role in meeting rising Asian energy demand, and liquefiednatural gas (LNG) will be traded under more flexible, market-linked pricingterms and arrangements, concludes a new study by the Energy Forum of the JamesA. Baker III Institute for Public Policy at Rice University.The study, “New EnergyTechnologies in the Natural Gas Sectors: A Policy Framework for Japan,” wascompleted over 18 months and was led by Baker Institute senior energy adviserand project coordinator Amy Myers Jaffe. Undertaken as a joint venture with thePetroleum Energy Center of Japan, the study was co-sponsored by the BakerInstitute and the Center for International Political Economy.The study will beavailable online at .Click the Research link on the menu at left, follow links to Foreign Policy,Energy Forum, and scroll to “Baker Institute Study Number 18.”The study notes that useof natural gas as an energy source in Asia in 1999 was 10 percent of totalprimary energy use, which was substantially lower than the world average of 23percent, suggesting tremendous room for growth.Recent technicalinnovations have made LNG processing and shipping more affordable, resulting inincreased sales in both Asian and Atlantic Basin markets. The end of the ColdWar also created new natural gas pipeline opportunities in Northeast Asia.Natural gas is mainlyused in Asia for electricity generation and petrochemical feedstock. The reportfinds that if natural gas can be imported after converting it intoordinary-temperature liquid fuels, the use of gas in the transportation sectorcould increase substantially. The authors conclude that because 70 percent ofthe increase in international oil use is expected to come from thetransportation sector over the next decade, the ability to utilize plentifulnatural gas supplies in manufacturing transportation fuels would greatlycontribute to enhanced energy security and environmental protection.An expected surplus inAsian gas supplies is spurring an interest in other supplemental technologiesfor other uses of natural gas. This study investigated the prospects forincreased LNG and natural gas pipeline shipments to Japan and the policyframework that is needed to promote augmented utilization of natural gas there.The study also forecastsincreased demand for natural gas in the United States market, and a natural gassupply deficit that could grow in the coming decade to as much as 6-7 trillioncubic feet in 2010 under high demand growth scenarios. The study suggests thatthe U.S. will have to turn to more pipeline imports from Canada and LNG from avariety of Atlantic Basin or Pacific Rim producers to meet the projected rise innatural gas demand. To fill the supply gap, the U.S. may be looking at importingup to 4 trillion cubic feet or in terms that the producers use, 80 million tonsof LNG per year under high-growth scenarios. However, the study concludes thateven at the most optimistic U.S. demand rate, a surplus of LNG on global marketswill remain, leaving plenty of supply to make its way to Asia and avoiding thekind of buyers’ bidding war that could substantially raise prices.The report authors alsopredict that the Asian market and Western markets will begin to look more alikeover time. Already Japanese customers are asking for more flexible terms intheir arrangements with traditional supplies. U.S. gas consumers and marketersare beginning to sign long-term agreements rather than depend solely on spot andshort-term arrangements. The authors predict that eventually both will adoptportfolio strategies, assembling a blend of supply and transportationarrangements that fit all needs.Japan, in particular,will be looking for more flexible terms, to include both spot and termcontracts, to offset unexpected disruptions in supply and help build marketsthere.The full report includeslegal, regulatory, and infrastructure changes that must be made to facilitateincreased market penetration of natural gas in Japan, including new suppliesfrom the Sakhalin Islands. It also covers innovative technologies that mightbroaden the sectors in which natural gas can replace other fuels. The study concludes thatJapan’s energy security and environmental goals would benefit from increased useof natural gas in its energy mix. A combination of LNG and pipeline gas importswould enhance natural gas trade in smaller volume increments, increasing thenumber of sectors that might use natural gas. It would also increase competitionand likely lower costs without jeopardizing supply stability and security.Government support of research in emerging natural gas technologies could alsohelp spread use of gas to new sectors in Japan.Study recommendationsinclude: In order to facilitatethe augmentation of gas markets, regulatory changes to Japan’s existing Gas Laware needed. The preparation of new laws, regulations, and procedures should notbe allowed to impede the efficient introduction of new fuels and the expansionof natural gas pipelines. The introduction ofnew fuels such as GTL and DME and the construction of international pipelineswere not considered in the formation of existing laws and regulations. An effortto adapt these products and the building of pipelines to existing laws willlikely result in a good deal of confusion and many delays. Thus, adjustments tothese laws, regulations, and procedures should be made quickly to enhance theintroduction of new fuels and facilities. Administration of lawsand regulations should be made in a nondiscriminatory manner where all marketplayers, including new entrants into a liberalized market, compete on equalterms. New entrants should be allowed access to gas infrastructure but at aprice that includes a fair return to investors for access to infrastructure.Market transparency and agreed network codes can then maintain the level playingfield between players. All prices, of bothnatural gas as well as its competitive fuel alternatives, need to bemarket-based and transparent such that inter-fuel and gas-to-gas competitionwill establish the most competitive delivered price to the end-user.In addition to Jaffe,members of the research team are Dagobert Brito, the Peterkin Professor ofPolitical Economy, Rice University; Peter Hartley, professor of economics, RiceUniversity; Ed Jones, coordinator, Lawrence Livermore National Laboratory;Robert Schock, nuclear physicist, Lawrence Livermore National Laboratory;Barbara Rhines Shook, Houston bureau chief, Energy Intelligence Group; andRonald Soligo, professor of economics, Rice University.Editors: For copies ofthe studies or more information about the Baker Institute for Public Policy,see: . FacebookTwitterPrintEmailAddThis Rice University is consistently ranked one of America’sbest teaching and research universities. 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