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LNG demand to grow in South East Asia

LNG Industry,

Wood Mackenzie believes that the combined South East Asian LNG markets will account for one third of overall Asian LNG demand growth by 2025, growing by 45 million tpa. However, the rate of India's LNG market growth may not be as sizeable as once thought, growing by 20 million tpa within this timeframe.

Wood Mackenzie's Senior Gas Market Analyst, Nicholas Browne, said: “Recent developments in Indonesia and Thailand have helped strengthen the outlook for very strong South East Asian LNG demand growth. In India, we are now seeing faltering domestic gas production and this is expected to limit the development of the gas market. Perhaps counter-intuitively to some, reduced gas production will also lower the rate of LNG market growth in India.”

Browne continued: “Indonesia will increasingly require LNG as we expect domestic demand to outpace domestic supply. Early coal bed methane (CBM) pilot well results in South Sumatra indicate that production will not meet previous expectations providing more headroom for LNG.”

Wood Mackenzie also expects higher gas demand in Thailand due to policy decisions in the power sector limiting the scope for coal-fired power generation. This will result in an increasing reliance on gas-fired power plants, which will drive LNG demand significantly post-2020 as indigenous gas and pipe imports will be unable to meet the demand.

Regarding India, production from Reliance's D6 block has fallen from a peak of 20 billion cubic m in 2010 to 11 billion cubic m in 2012. Wood Mackenzie forecasts production from D6 to continue falling, reducing the overall outlook for Indian gas production. Browne said: “This will constrain gas availability to the market, mainly impacting the power sector in the medium term. In the longer term, reduced production will preclude the development of greenfield fertiliser production as it is not economical to develop facilities purely based on LNG imports. In addition, LNG demand growth in other industrial sectors is further limited by reduced economic growth expectations.”

Wood Mackenzie believes that overall Asian demand growth will remain strong as South East Asia will more than compensate for India's slower LNG demand growth. Furthermore, LNG demand expectations for Asia have strengthened in recent years due to the reduced long-term reliance on nuclear power in Japan and Taiwan; as well as an increased role for LNG to China's coastal provinces.

Browne concluded: “What's important in examining this shift in the growth balance is that it demonstrates that the outlook across Asia is dynamic. This highlights the presence of key uncertainties which may further shape the outlook for the region. These include policy issues in India; gas prices and power sector fuel competition in SE Asia; the pace of shale gas development in China and nuclear policies in Japan, South Korea and Taiwan."

Adapted from press release by Callum O’Reilly

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