It is predicted that the largest consumers of natural gas, Southeast Asia, will move away from gas to use more coal by the end of this decade. Consequently taking away demand for liquefied natural gas as the region tries to cut costs to meet rising electricity demand. With a number of LNG projects due to come online over the next ten years this shift in consumption from a region long expected to be a key growth market could help take some of the heat out of rising Asian gas prices.
Demand for LNG from countries such as Japan and South Korea whose nuclear power sectors are in crisis and China where stringent pollution control measures are being enforced, has been driving the switch to gas from dirtier coal.
As a result, spot LNG prices have surged 85 percent in Asia since the Fukushima disaster in March 2011. With Japan’s nuclear reactors forced to close it boosted LNG imports to fuel up CCGT power plants. Furthermore the price of coal has slumped 30 percent over that time. New LNG supplies from Australia, North America and East Africa set to come online closer to 2020 could help narrow this gap, but a rise in global LNG demand of around 7 percent a year until 2020 will still result in a tight market.
Gas prices in Asia are on average five times more expensive than in the United States. This should keep coal’s cost advantage intact, undermining gas demand from Southeast Asian nations that are already weighed down with expensive fuel subsidies and huge trade deficits. If planned terminals come online, Southeast Asia’s capacity to import LNG could triple to nearly 50 million tonnes per year by 2018. But as long as the price differential favors coal, the outlook for the region’s LNG demand will be bleak.
Also, many Southeast Asian governments face less public opposition to burning dirty coal, with surging demand for power and budget constraints eclipsing attention on cleaner air and other environmental benefits.