Emerging markets are the next big thing in the midst of a perfect storm of compelling long-term macro drivers: strong economic and population growth, electrification of transport and industrial systems, high rates of urbanisation, energy market reforms, and the policy push towards cleaner energy sources. As global economic growth shifts to Asia, Africa and South America, billions of people will move up the economic ladder to middle income brackets. An estimated 5.2 billion people will be living in urban centres in emerging markets by 2050.
A huge energy demand tsunami is building. Macro trends together with localised country characteristics are opening up brand new customer markets. Driven by increased consumption from the transport and industrial sectors, together with upstream gas production declines, Southeast Asia is a huge commercial opportunity. LNG demand could exceed 25 million tpy by 2025.1 For countries seeking to secure supply of clean energy to fuel their growing economies, LNG is the panacea.
The rapid development of LNG in India shows how customer dynamics are shifting. Demand growth in LNG’s traditional markets – Japan and South Korea – is flatlining, with emerging markets picking up the slack.
Where exactly are these new customer markets? It starts with China and India. These two economic titans are fast becoming the Jupiter and Saturn of the LNG universe. Both have ambitious targets to increase the share of gas in their national energy mix, driven by clean energy policies and the need to secure reliable supply of energy to support their economic growth. Their stories have been playing out for years and are well reported on. This article will focus on the next group of countries, outside India and China, that are driving the LNG industry forward.
Future LNG demand catalysts
Vietnam is an energy-intensive, high growth emerging market looking for security and diversity of energy supply.
Electricity demand is growing 10% annually, outpacing economic growth thanks to the rapid growth of air conditioners as living conditions improve. Domestic gas consumption is forecast to grow approximately 10% annually in the next decade, supported by government efforts to diversify out of coal into cleaner alternatives.
One factor setting Vietnam apart is its emergence as a global manufacturing hub. Manufacturers are setting up shop in Vietnam, attracted by the competitive local cost environment. The structural shift in Vietnam’s economic make-up will push it along a more gas-intensive growth trajectory.
A narrative around supply tightness is emerging – while Vietnam has gas fields, production facilities and processing infrastructure, it also has finite resources. Vietnam’s domestic gas production is on a sharp decline curve after 2020 as existing fields are exhausted, precisely at the same time when energy demand is ramping up.
Under its gas industry development plan, Vietnam is looking at LNG imports to bridge the shortfall. An estimated 10 LNG terminals are in the pipeline.2 This includes Vietnam’s first LNG terminal in the southern port of Thi Vai, operated by PetroVietnam and due for completion in 2022.3 In another landmark project, Vietnamese NOC Petrolimex, in partnership with Japan’s JXTG, is looking to build an integrated LNG terminal and power plant in the southern coastal province of Khan Hoa.4
Vietnam’s biggest challenge is financing its ambitious gas infrastructure program with the public debt/GNP ratio close to its ceiling level. Major LNG projects will have to compete with a host of other proposed infrastructure projects to secure government approval. The best hope is for foreign capital to help fund an LNG infrastructure program. Established players like Japan and the US are taking a serious look at Vietnam as a potential new customer market to sell LNG.
1. DESMARESCAUX, M. and ABREU, A., ‘Analysis: Southeast Asia’s LNG balancing role in focus, as Thailand agrees import capacity expansion’, S&P Global Platts, (02 October 2019), https://www.spglobal.com/platts/en/market-insights/latest-news/natural-gas/100219-analysis-southeast-asias-lng-balancing-role-in-focus-as-thailand-agrees-import-capacity-expansion
2. ONISHI, T. and KURIMOTO, S., ‘Vietnam’s state energy companies gear up for LNG imports’, Nikkei Asian Review, (09 March 2019), https://asia.nikkei.com/Business/Markets/Commodities/Vietnam-s-state-energy-companies-gear-up-for-LNG-imports
3. ‘Samsung C&T to build Vietnam’s first LNG terminal’, LNG World News, (25 June 2019), https://www.lngworldnews.com/samsung-ct-to-build-vietnams-first-lng-terminal/
4. ‘JXTG, Petrolimex join forces on Vitenamese LNG business study’, LNG World News, (03 July 2019), https://www.lngworldnews.com/jxtg-petrolimex-join-forces-on-vitenamese-lng-business-study/
This is an abridged version of an article that was originally published in the January 2020 issue of LNG Industry. The full version can be read here.
Read the article online at: https://www.lngindustry.com/special-reports/17012020/new-customers-for-a-new-decade/