GAS AND POWER: More gas for Asia in short term; but later?

• DOI: http://doi.org/10.1111/oet.12315
• Published date: 01 September 2015
• Date: 01 September 2015

GAS AND POWER

More gas for Asia in short term; but later?

Lower oil prices are leading to the postponement of a

number of gas schemes with exports aimed at markets

inAsia,whichcouldcausetightnessacrosstheregion

at some stage in the future. Many schemes, however, are

too far advanced to be curtailed, leaving Asian buyers

with plenty of new suppliers to choos e from at present.

At the s ame t ime , dem and f or gas cou ld be h it by a

number of developments, including a slowdown in the

rate of economic growt h in China and th e planned

restart of several nuclear reactors in Japan that were

closed following the tsunami of March 2011, which led

to their closure on safety grounds.

Chinese slowdown

Although the ocial gures suggest otherwise, China’s

economic growt h is showing every si gn of slowing down.

As Asia’s largest market for gas, it c onsumed 17.9 bn cf

in 2014, of which it imported a net 4.9 bn cfd. Imports

consist of both liqueed natural gas (LNG) and pipeline

gas and this year, LNG deliveries have been down com-

paredwithlastyear’slevels.Laterthisyear,anum-

ber of new LNG impor t contracts are due to b egin,

although it is not clear how much of the extra gas

canbeabsorbedbyChina.Highdomesticgasprices

are denting demand and low oil and coal prices mean

there is less incentive to switch from these to natural

gas.

Gas demand in China grew by 9% in 2014, but this

year the increase has only been of the orde r of 3%.

egovernmentisanxioustoseegasconsumptionrise

strongly in order to meet targets to reduce air pollut ion.

It particularly wants to see gas gai n market share against

coal, which is re sponsible for a good deal of the cou ntry’s

air pollution, but it is a lso promoting substitution by gas

in the transport s ector in order to reduce pollution from

vehicles in large cities. ere is stil l a long way to go,

however. Last year, coal accounted for 66% of primary

energy demand. Oil was second with a 17% share, while

gas was fourth with only 6%, aer hydro-electricity,

which accounted for 8% of the total.

e government has tried to boost gas consumption

by cutting domestic prices, but to little eect so far.

Meanwhilesuppliescontinuetoincreasefromboth

domestic produc tion and imports by pip eline, which

come mainly from Turkmenistan. LNG has become the

marginal source of supply and therefore imports have

fallen, but an increase in deliveries is scheduled for later

this year, suggesting it could be a poor year for LNG

prices in 2015.

Japan’s nuclear restart

China is not the only countr y facing an LNG surplus

this year. India, South Korea, and Japan appear to be

comfortablysuppliedaswell.InJapan’scase,thereason

is the restartof the rst nuclearreactor following the pro-

longed shutdown of the country’s nuclear power station

aer the power station at Fukushima was destroyed by

a tsunami in March 2011. At present, only one nuclear

power station is set to come back on-line, Kyushu Elec-

tric’s Sendai plant; but a gradual return of Japan’s 43

other reactors over the next few years could act as a

dampener on demand for some time.

Japanistheworld’slargestimporterofLNG,import-

ing 11.6 bn cfd in 2014. All ofits imports are of LNG and

domestic production is negligible. Its largest suppliers

are Australia, Qatar, and Malaysia. LNG imports rose

between 2011 and 2014 by 1.8 bn cfd to compensate for

the loss of Jap an’s nuclear cap acity. is year, demand for

gas has fallen thanks to weaker demand from industrial

and commercial users, and consumption was further hit

by mild temperatures at the start of the year. Low prices

foroilandcoalhavealsohelpedtoreducedemandfor

more expensive LNG. Coal, in fact, has been experi-

encing something of a renaissance in Asia with demand

growing both for coal for direct burning as well as forgas

produced from coal. Last year, Japan’s largest electricity

utility, TokyoEl ectric Power Company announced plans

for new coal-red capacity because ofthe relatively high

price of LNG [1].

Rising supply

Earlier forecasts of booming demand to LNG led to the

announcement of several schemes to supply gas to Asia.

is year alone, Australia and Indonesia are expected to

have a total of 4.5 bn cfd of new LNG e xport capacity

available, while next year Australia and the US together

are expected to bring a further 4.1 bn cfd on-stream with

a further combined total of 3.4 bncfd due in 2017 plus a

further 1.0 bn cfd from Papua New Guinea [2].

More LNG suppliers to Asia are due to emerge aer

2017, including Canada, Russia, Iran, and Nigeria, but

with LNG prices now weak some of these post 2017

schemes look likely to be postponed, especially t he most

expensive ones, such as those planned in deep water.

One reported to b e in this categor y is Chevron’s and

Pertamina’s eld in the Makassar Strait. Further gas

developments in South East Asia and Australia–as well

as some on theother side of the Pacic in Canada– could

also face delay or in some cases cancellation [2].

© 2015 John Wiley& Sons Ltd