SINGAPORE, Dec 29 (Reuters) - China plans to launch a natural gas trading hub in Chongqing in early 2018, aiming to create an Asian gas benchmark as a government push to move the country away from coal sparks a surge in consumption of the cleaner-burning fuel.
But developing gas trading hubs and price benchmarks is difficult and takes time, and many contenders fail to become established for lack of critical components.
Below are the typical hallmarks and requirements of gas trading hubs and benchmarks.
WHAT IS A GAS HUB?
Natural gas hubs tend to be at the heart of gas infrastructure networks such as pipelines and liquefied natural gas (LNG) terminals.
The hub is used as a central pricing point for the network's natural gas. In some cases, a financial derivative contract is priced off gas delivered at this point as well.
WHAT IS NEEDED TO CREATE A GAS HUB?
Establishing a gas trading hub takes time, investment and political will to let prices develop without regulatory intervention.
Gas hubs require pipeline networks and storage sites that allow supplies to be traded and moved about at short notice.
Diverse sources of gas supply, including from domestic output, pipeline imports and overseas LNG shipments, are seen as favourable to avoiding domination by a few producers.
A strong consumer base, with competing buying interests - for example, from household, power and industrial consumers - is also seen as crucial to developing a diverse market place.
Regulation allowing domestic and foreign participants to trade and access pipelines and storage facilities is also seen as essential to establishing a gas hub. Participants also need to know they can trust a government not to intervene when prices go against local interests.
An oversupply of gas is also seen as necessary in the early stages of developing a trading hub to allow the commodity to be exchanged in significant volumes.
WHERE ARE THE MAIN GAS HUBS?
The world's biggest natural gas hub is the Henry Hub in the U.S. state of Louisiana.
Gas delivered at this point is the basis of most U.S. natural gas futures - by far the world's biggest gas derivatives market - and is also used to price U.S. LNG exports.
The Henry Hub benefits from vast domestic production and consumption in the United States, as well as the world's biggest and most freely accessible pipeline network, which stretches into Canada and Mexico.
In Europe, Britain's National Balancing Point (NBP) and the Dutch Title Transfer Facility (TTF) have emerged as the main natural gas hubs.
The NBP was Europe's first actively traded gas hub, like its bigger U.S. counterpart, benefiting from open market regulation, significant domestic production - in the North Sea - and high consumption. Britain also takes pipeline gas from Norway and imports LNG.