Wood Mackenzie: Asian LNG demand expected to increase 5% in 2024, but challenges remain

“2023 presented a mixed bag for Asia Pacific’s gas markets. While softening LNG prices supported LNG demand, economic headwinds, fiercer inter-fuel competitions, and a mild winter at the beginning of the year hindered the strength of the recovery,” said Miaoru Huang, Research Director, Asia Pacific Gas and LNG at Wood Mackenzie. “Geopolitical events and near-term price volatility added to the challenges faced by policymakers in balancing energy security, energy equity, and environmental sustainability. As we move into 2024, the role of gas in the region will be shaped significantly.”

Contractual rights will be under the microscope

2023 saw strong LNG contracting activity with 32 million tpy signed by Asian customers. Chinese buyers have increased contracted term volumes in their portfolio and are comfortable with limited spot exposure for 2024. Some Chinese players are expected to continue negotiations with LNG suppliers, aiming to build a flexible portfolio to generate trading profits as they build teams across trading hubs in London and Singapore and compete in international markets with IOCs and traders. As spot prices remain volatile, industry players will closely monitor price arbitrage between spot prices and long-term contracts (Brent-linked) on individual cargoes to maximise short term profits. This may lead to an increase in the number of disputes between buyers and sellers in 2024.

Regasification underutilisation and shipping canal transit risks will remain paramount

Record regasification capacity additions in 2024 will position Asia for future LNG demand growth. However, according to Wood Mackenzie, more severe underutilisation as LNG demand growth lags capacity expansion. China alone will add over 50 million tpy regasification capacity in 2024. That includes Chinese inland waterway terminals, which will be the first of their kind. More regas terminals in northern China may adopt bonded storage and transfer businesses to mitigate the financial risks due to predicted low usage. Huang added: “The Asia Pacific region is expected to add 75 million tpy of regasification capacity by 2024, which may result in the highest level of underutilisation in 10 years on average.”

2024 elections and policy reviews will have long-lasting impacts on gas markets

Alongside election-driven change, several periodic energy policy reviews and market liberalisation developments are on the horizon. Japan is expected to release its 7th Strategic Energy Plan in 2024, which may include revisions to the 2030 power mix targets. The existing plan aims to significantly reduce the use of fossil fuel power by 2030 in favour of nuclear, renewable, and hydrogen. In Singapore, energy security concerns have led to a retreat from market liberalisation. A new single buyer for the power sector will be introduced in 2024, resulting in a major change in Singapore’s LNG contracting and competitive landscape.

Energy security concerns, however, are not stalling liberalisation progress everywhere. In Malaysia and South Korea, decisions on regulated pricing and commissioning new independent regasification infrastructure will open more opportunities for third-party participation next year.

With key elections in 2024, approvals and decision-making in the Asia Pacific region are expected to be slow, and significant changes in policy direction will be limited until new regimes come into office.

“We expect LNG demand to continue recovering, with investments in infrastructure and new supply moving forward. The stage is also set for carbon capture and storage (CCS) developments. Additionally, several regional markets will see elections this year, which could have long-lasting impacts on gas markets,” Huang concluded.

Read the article online at: https://www.lngindustry.com/special-reports/18012024/wood-mackenzie-asian-lng-demand-expected-to-increase-5-in-2024-but-challenges-remain/