India looks to spike European leverage, calls for Asian block to get natural gas price cuts

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Asian buyers, he said, Asian buyers, he said, "will have to emerge united in their approach. (Reuters)
SummaryIndia called China, Japan and Korea to forge an Asian buyers block to undermine European leverage.

With energy suppliers preferring Europe over Asia in offering favourable deals, India today called large consumers in the region like China, Japan and Korea to forge an Asian buyers block to extract natural gas price discounts.

Despite most of the growth in natural gas demand coming from Asia, energy suppliers sell fuel to the region at a rate which is higher than the so-called premium markets of Europe.

Oil Minister M Veerappa Moily termed this difference in price as Asian premium and suggested that India, China, Japan and Korea - four of the top five energy consumers in the world, can forge a alliance to get favourable pricing from natural gas suppliers in the Gulf and elsewhere.

"We understand that its not only demand supply imbalance, which govern prices for Asian markets. There are other elements too which determine the Buyer-Seller relationship.

"It has been observed in some recent deals that prices offered by the same seller to Europe and Asia vary greatly, beyond net back and business considerations," he said addressing the eighth Asia Gas Partnership Summit here.

Moily said Asian buyers need to look into their sourcing and pricing strategies.

Asian buyers, he said, "will have to emerge united in their approach. Large Asian buyers coming together may negotiate from a position of strength."

He said one of the reason for Asian Premium could be that Asian markets lack a transaction platform to transparently trade natural gas or liquefied natural gas.

"With growing Asian demand and increasing LNG trading, there is a case for the emergence of a trading hub in Asia which would facilitate hub indexation which is more linked to actual natural gas market fundamentals in the Asian region," he said.

Growth in gas consumption in these emerging markets, he said, will crucially depend upon affordability and stability of prices at which gas is going to be sourced.

Energy sellers and buyers must see mutual benefit in each other's progress and share investments and profits as partners and not rivals, he said.

Recent developments like the US shale gas revolution which has turned America into a gas exporter from an importer and increase in LNG trading, are going to bring fundamental changes in the global gas market.

Moily also saw scope for integrating energy assets amongst India's neighbours - Sri Lanka, Pakistan, Myanmar, Bhutan and Bangladesh.

"Such cooperation will not only enhance competitiveness but will also improve relationships in the region. Efforts in this regard are already underway through

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