China is moving ahead in the race to establish an Asian gas trading hub, after the government approved plans to launch an electronic trading platform in Shanghai in the next month or so. Asian buyers want a hub that reflects regional fundamentals - similar to the Henry Hub in the US or the UK's National Balancing Point - but lack of transparency and liquidity have undermined proposals to date, notably from Japan and Singapore (WGI Dec.24'14). Whether Shanghai can do any better is debatable. Its big plus is China's massive gas demand potential, the availability of pipeline gas and LNG in Shanghai, which could add to liquidity and allow gas-on-gas competition, and storage infrastructure. But the drawbacks could be even greater: Chinese-style capitalism means the country's three big state-owned suppliers control all the pipeline infrastructure and Beijing is still heavily involved in regulating gas prices. Without further reforms of the gas business and a hands-off approach by the government, industry insiders believe the hub is doomed to fail.
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