The oil and gas market in Asia is heating up fast

In 2011, the International Energy Agency predicted a “golden era” of gas, where natural gas would be a “bridge fuel” between coal and renewable energy over the next two decades.

But the poor demand for natural gas in Asia in 2013 to 2015 forced the IEA to withdraw in June 2015 from its previously optimistic forecasts.

However, demand for natural gas in East Asia has increased significantly after 2015, especially in South Korea and China.

In South Korea, President Moon Jae promised to replace coal and nuclear power generation with renewable energy and gas during the 2017 election campaign.

In China, the current leadership that took power in 2013 greatly appreciates ecological values ​​and environmental protection, driven by President Xi Jinping’s slogan that “sparkling waters and lush mountains are invaluable asset.” The change in ecological values ​​is accompanied by growing concerns about rising middle class pollution.

China in particular is on the way to being the world’s largest natural gas (LNG) importer in the world. Despite challenges, China has extended coal and coal-energy projects to 35 cities in 2018 (out of 12 cities a year ago) in order to improve air quality.

These projects support a high growth in natural gas demand. China’s gas consumption has increased annually since 2000, with the exception of 2013 to 2015. Urgent demand pushed China to capture South Korea as the world’s second largest importer in 2017 and Japan as the importer the largest gas in 2018.

Asia Pacific leads gas trading

As reported by the International Gas Union (IGU), Asia Pacific markets were the target of nearly 70 percent of global LNG trade in 2018. China and South Korea accounted for nearly 80 percent of global LNG global trade growth in 2018 .

In January 2019, China announced plans to increase LNG fourfold capacity over the next two decades with ambitions to have 34 coastal terminals with a combined annual import capacity of 247 million tons by 2035. As a reference , global LNG trade in 2017 was only 289 million tons.

Pacific Asia also expects some of the world’s leading LNG exporters: Australia, Malaysia, the United States and Indonesia (second, third, fourth and seven largest exporters in 2018, respectively).

In 2018, Australia accounted for 22 percent of global LNG supply (68.6 million tons), just below Qatar 25 percent (78.7 million tons). IGU specifically speculated that Australia will take up its position by mid-2019, when two liquefaction projects are expected to achieve full commercial operations.

But it generally agrees that Australia will only hold the crown for several years before Qatar is renewed. In the long run, either the United States or Qatar will take the lead lead position while Australia will be in third place.

The United States’ potential to be the largest LNG exporter in the world suggests that China will eventually buy US LNG if the two countries can reach an agreement to end the trade war – the only uncertainty is how much and when. China may finally buy US LNG at the expense of imports from Australia and Qatar.

LOSS OF COST COMPETITIVENESS

While most of the existing LNG exports (82 percent in 2017) are likely to be protected from long-term contracts in the next decade, domestic exports are severely vulnerable due to their lack of competition.

US LNG, valued through an alternative pricing mechanism, may also facilitate a change in broader LNG pricing mechanisms that could lead to a premature ending of Australia’s long-term contracts.

The Asia Pacific will undoubtedly be the centre of gravity in future gas and LNG markets. While Asia Pacific countries are the major players, the entrance of the world’s largest gas exporter — Russia — into the East China gas market (initially through LNG and later pipeline gas) adds further competition.

The “Power of Siberia” pipeline that will pump 380 billion cubic metres of natural gas (equivalent to 28 million tonnes of LNG) into the region could start operations from September 2019. Some consider this pipeline deal as poised to change energy geopolitics, which is not good news for other LNG exporters.

Natural gas markets are changing in response to new opportunities in the Asia Pacific and globally.

Still, in the long run, natural gas, together with other fossil fuels, will complete their historical roles as energy fuels when renewable energy take the energy supply throne./Investing.com

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