If, as the International Energy Agency speculates, we are about to enter a ‘Golden Age of Gas’, the Asia-Pacific region will be a major player in it. In particular, the region’s robustly growing energy needs, of which natural gas will play no small part, means that it will become a major focus for both existing and prospective exporters of LNG for the rest of this decade and beyond.
Asia-Pacific gas market
The Asia-Pacific region contains major gas-consuming markets with virtually no gas resources of their own (Japan, South Korea and Taiwan), markets that produce gas domestically but not enough to avoid growing dependence on imports (China and India), and exporters of gas in the form of LNG (Malaysia, Indonesia and Australia). While Asian oil consuming economies will rely on sources from outside the region such as the Middle East for crude oil, its gas profile is somewhat more complex.
The Economist Intelligence Unit (EIU) estimates that gas consumption in the Asia-Pacific region will reach just short of 800 billion m3 by 2014, compared to 558 billion m3 in 2010. By 2014, therefore, the EIU forecasts that gas consumption in the region will exceed gas demand in the US, and represent 21.5% of global gas demand.
While economic growth is an obvious driver for the increase in gas consumption, the EIU forecasts growth to average around 8% in China and around 6% in Asia-Pacific between 2012 – 2014, other policy-related drivers will also play a part. India and China are particularly reliant on coal for power generation. Natural gas, which represents a very small proportion of China and India’s energy mix, is viewed as a solution to diversifying sources of energy supply while also limiting growth in carbon emissions resulting from rapid economic development. Meanwhile, in Japan the Fukushima nuclear accident in 2011 will result in greater reliance on non-nuclear sources of fuel in the longer term.
The Asia-Pacific region is in fact already a major player in the global LNG scene, with the region accounting for over 63% of total global LNG imports in 2011 of 241.5 million tpy. Japan and South Korea are the two largest importers of LNG, with imports of 78.8 and 35.8 million tpy respectively in 2011. China (12.8 million tpy), India (12.7 million tpy), Taiwan (12.2 million tpy) and Thailand (0.7 million tpy) also imported LNG.
Malaysia, Indonesia and Australia
As a well established region in the global LNG trade, energy consuming economies in Asia are key markets for three major LNG exporters in the region: Malaysia, Indonesia and Australia. These three LNG exporters accounted for approximately 42% of exports to LNG importing countries in the region in 2011, although Qatar was the largest single supplier to the region, exporting approximately 36 million tpy to Asian markets in 2011. Qatar became the largest LNG exporter with a surge in capacity between 2004 and 2011 to 77 million tpy, but this decade will be an Australian one, as it is likely to exceed Qatar’s export capacity by 2020.
Not only is Asia the largest market for LNG, but it will also be the fastest growing. The IEA estimates that 64% of the planned global increase in LNG regasification capacity from plants under construction will occur in Asia alone, or 78 billion m3 out of 121 billion m3.
Which LNG suppliers are likely to meet the region’s requirements? Qatar has muscled in as the largest supplier to the Asian region already, providing competition to Asia-Pacific exporters Malaysia, Indonesia, Australia and Brunei. However, Australia will have the most significant impact as an emerging supplier to the Asian LNG market for the remainder of this decade, while beyond 2020 North American LNG stands to become a major source of Asian LNG supply.
Australia has seven LNG liquefaction projects under construction, all of which have passed the final investment decision (FID) phase and will start operating between 2014 and the end of this decade.
The total capacity of these seven Australian projects that have passed the FID phase is 61.3 million tpy, the EIU estimates. This would push Australia’s LNG capacity past that of Qatar to 85.6 million tpy (with the Pluto LNG project now in operation, Australia’s current capacity is 24.3 million tpy.
Australian LNG exporters may face competition from North American LNG suppliers for the lucrative Asian market further down the track, a development that will impact proposed Australian LNG projects where FIDs are still some way off. However, it is unlikely that LNG exports from the US and Canada will make an impact until the end of the decade.
Canada and USA
Canada’s National Energy Board has awarded an export licence to the 5 million tpy Kitimat LNG project in British Columbia, Canada, while Shell and its Asian partners PetroChina, Kogas and Mitsubishi are pushing ahead with a 12 million tpy LNG project in British Columbia. The big story, however, will be the US. LNG operator Cheniere has won approval from both the US Department of Energy (US DOE) and the Federal Energy Regulatory Commission (FERC) to go ahead with the export of LNG from its Sabine Pass terminal, the only such application approved so far. Further consideration of approvals by the DOE was put on hold pending the federal government review on the impact of LNG exports on domestic natural gas supply and prices. This report was finally released in December 2012 and found that LNG exports would provide a net benefit to the US economy.
However, the crucial element in the regulatory stage for approval of LNG export terminals will be the FERC, the agency that has the authority to give the green light to specific projects after a lengthy review process. President Obama will face considerable pressure from within his own ranks to limit, or at least slow, approvals for more LNG exports.
In this respect, Australia looks to have an advantage as it already has seven projects under construction with committed buyers already signed up in long-term contracts. This is provided, however, that escalating costs involved with some of these projects do not cause severe delays to the targeted start-up years.
As a result, the Asian LNG market looks set to readily expand. The region is driving growth in global regasification capacity as Asian economies grapple with limited resources of their own and geographic barriers to transnational pipeline networks.
Data from International Gas Union, World LNG Report 2011.
Peter Kiernan, The Economist Intelligence Unit, UK
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