Forecasting Asian LNG demand growth is a risky enterprise these days and the upstream industry needs to veer towards caution and reconsider its marketing approach, argues a new paper by the Oxford Institute of Energy Studies, titled Asian LNG Demand: Key Drivers and Outlook. The major markets of Japan and China in particular are problematic, over the next decade, as the author, Howard Rogers, sees these countries as having the widest ranges of possible growth.
This matters because LNG is becoming more and more flexible and what is not taken up in one part of the world will lower prices elsewhere. "With some 170bn m³/yr of new LNG supply due to come on-stream prior to 2020, the uncertainty over the future Asian LNG demand trajectory is a fundamental component impacting the global ‘LNG-connected system'," he says.
Part of today's oversupply results from the strong market signals generated by the aftermath of the Fukushima tsunami which led to the closure of Japan's nuclear fleet and the resulting rise in demand for alternative fuel for power generation. Gas met some of this demand and spot prices rose; but Japan's energy demand has since been stagnating along with the manufacturing sector and the labour force is shrinking. The nuclear plants could stay off, or could be returned to service. So far progress has been very slow with just a few back online.
Despite the economic slow-down, China's gas demand is likely to grow for a variety of reasons, including in the interests of public health and the commitments the country made to the COP21 process to decarbonise the atmosphere. But this gas could come by pipeline too, from central Asia and Russia, as well as from domestic production of shale and conventional gas reserves. The UK major BP signed an upstream shale gas production sharing agreement in China at the end of March, for example.
Elsewhere government policy, such as regulating the gas price or restricting the use of coal in power generation, will be key in determining the outcome in many countries. Rather than enforcing the use of gas, governments might instead make assumptions about the growth of renewables and efficiency gains as alternative ways to lower carbon emissions.
Other unknowns are the results of exploration activity which could dampen demand for LNG imports and unsound national economies, although floating regasification plants can minimise the seller's financial risk.
Published to coincide with the start of a major LNG conference in Perth April 12, the report, which examines the mature markets of Asia as well as the new entrants, says that producers need to sell their output as a solution to their customers' environmental commitments. It also says they need to make strenuous efforts in cost reduction through competition in the liquefaction equipment sector if gas is to extend its foothold at the expense of other, now cheaper, fuels.
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