Analysis: Next wave of Asia’s LNG demand hinges on affordability, competing fuels
The next wave of LNG demand growth expected from Asia’s emerging economies is far from assured, raising questions over how fast supply from new projects can be absorbed by the market in the coming decade.
The concerns emanate from the economic and energy profile of these countries, which stretch from Pakistan to the Philippines, and for whom seaborne gas imports remain one of the most expensive fuel sources that is yet to find a permanent place in their energy mix.
This is vastly different from developed economies like Japan, South Korea and Taiwan that have traditionally anchored LNG demand, accounting for over 60% of global imports. At stake are several billions of dollars invested in supply projects globally, for which investors may have to temper their expectations.
Some industry proponents have argued that supply will create its own demand, but looming risks of a recession mean that expensive LNG could be the first fuel countries axe from their energy mix when demand slows.
“The capital for investment and development of LNG is significant while the financial capabilities of Vietnamese enterprises are limited,” Tran Tuan Anh, Vietnam’s Minister of Industry and Trade, said last week at the LNG Producer-Consumer Conference in Tokyo, one of the region’s most high profile government-backed events.
Tran cautioned that imported LNG is priced higher than domestic fuels such as gas and coal, while electricity prices in Vietnam were still low, severely limiting the competitiveness of LNG.
The cautionary note comes from a country that is slated to join the LNG import club soon. Tran said Vietnam is expected to start importing LNG from 2022 and increase imports to 5 million mt/year by 2025, 10 million mt/year by 2030 and 15 million mt/year by 2035.
International Energy Agency Chairman Fatih Birol said there will be as many as 50 countries importing LNG by 2025, compared with only eight countries in 2000, but many of them will be opportunistic buyers.
“If prices go up very high, for the gas industry here, the opportunistic buyers may look at different options and therefore the price levels are important to have healthy demand growth,” Birol said.
LNG REMAINS A PREMIUM FUEL
The affordability of LNG affects most Asian countries looking to boost LNG’s share in their energy mix. In the past, higher prices have caused trade flows to decline and LNG terminal utilization rates to drop, while sellers are still struggling to tie up downstream demand at current prices.
“We anticipate [energy demand] growth of 10% per annum for the next 20 years. Where do we get this energy at an affordable price? Stability is certainly an important issue but affordability is very relevant for us,” said Tawfiq-e-Elahi Chowdhury, adviser to Bangladesh’s prime minister on energy affairs.
“We have been importing LNG based on oil index, but then as we look at other pricing mechanisms, a mixture of oil and Henry Hub might offer reliable and less volatile and affordable prices,” he said, adding that Bangladesh plans to increase LNG imports by 10 million mt/year in 3-4 years if prices are feasible.
Bangladesh has been tapping spot markets for cheaper LNG, and along with Pakistan and India, has made South Asia a key destination for LNG.
LNG COMPETES WITH RENEWABLES, NOT COAL
Emerging Asia’s LNG demand has unique characteristics; unlike North Asia, it not entirely driven by the power sector, and industrial demand fundamentals are set at a different price point.
“The biggest driver of LNG in Asia is the industrial sector,” IEA’s Birol said, adding that the power sector was being squeezed between renewables and coal in many countries.
As renewables get cheaper, they threaten to push out LNG from the energy mix, while cheap coal remains the hardest to dislodge. In Asia, LNG competes with renewables, not coal.
“We are not leaving our fate to the market. We are undertaking an energy transition in our own way,” Bangladesh’s Chowdhury said, referring to its renewables push. “We don’t have Tesla’s but we have more than 1 million three-wheelers that run on batteries,” he said.
Even large fossil fuel producers in Southeast Asia are conflicted, with Indonesia saying it will not approve new coal-fired power plants, except mine-mouth plants — plants built next to coal mines.
“I personally believe that incoming renewable energies will reshape the traditional fossil fuel businesses around the globe including LNG,” Ignasius Jonan, Indonesia’s Minister of Energy and Mineral Resources, said, adding that while LNG may slowly replace coal, it is facing serious competition from renewables.
Thailand’s Minister of Energy Sontirat Sontijirawong also said growth in renewables and energy efficiency will reduce the call on gas imports.
“In many countries policy change towards diversifying resources may impact LNG procurement,” he said, adding that LNG price volatility causes economic, budgetary and investment uncertainty for both consuming and producing countries and Thailand was no exception.
He said Thailand expects to import 20 million mt/year LNG by 2025 and 34 million mt/year by 2036.