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Cheap gas creates new LNG-import markets in Asia

Mon 08 Jan 2018 by Hong Liang Lee

Cheap gas creates new LNG-import markets in Asia
Emerging Asian buyers including Malaysia will import 60 mta of LNG in 2025

A group of emerging Asian LNG importers has planted the seeds of a new global LNG trading landscape, as they feed off low prices in an oversupplied market and accelerate national energy reforms to increase the use of gas.

In Asia, developing economies such as Indonesia, Thailand and the Philippines have drawn their blueprints for the greater use of LNG in their energy mix. Other countries such as Bangladesh and Pakistan are looking to secure more reliable and cleaner forms of energy to address chronic power shortages.

The Asian market remains under-contracted considering how rising populations and greater industrialisation have created a growing hunger for energy in the region.

According to Anadarko Petroleum general manager Rajnish Goswami, by 2030 the Asian market will need 114 billion tonnes of new LNG supply, and demand from the emerging markets will grow by 50%.

Part of the demand can be met by Mozambique, one of the world’s newest suppliers, with 50 mta of availability, Mr Goswami said.

Galway Group head of business development Mangesh Patankar predicts that by 2025 demand for LNG in Asia will reach 290M tonnes a year (mta). He expects emerging buyers in the region, such as Indonesia, Thailand, Malaysia, Singapore and Pakistan, to import a total of 60 mta in 2025, making up 79% of Asia’s LNG imports, compared with 21% from the region’s traditional buyers China, India, Japan, South Korea and Taiwan.

The growth of LNG imports in emerging Asian nations, however, needs to be backed by investments in multiple elements of the gas value chain, including shipping assets and bunkering operations, onshore and offshore terminal infrastructure, breakbulk and LNG trucking facilities, cross-country pipelines, gas distribution networks and CNG stations.

South Asia demand

In South Asia, Bangladesh is set to join India and Pakistan as a major LNG importer, a significant development that can help to ease global oversupply. In 2016, only India and Pakistan imported LNG in this region, absorbing a combined 25 mt.

Pakistan itself is a new LNG importer, with its first cargoes arrivingin 2015. A second terminal with its floating storage and regasification unit (FSRU) provided by BW, is scheduled to come on stream in 2018. A third FSRU newbuilding on order to Höegh LNG was planned for 2018-2019 – but in November, it emerged that the consortium behind it has been dissolved, after French energy firm ExxonMobil pulled out of the project.

Before that development, Pakistani official figures put the country’s LNG demand at 30 mt in 2022, up from 3.4 mt in 2016.

The addition of Bangladesh as an importer could see South Asia take in 80 mta by 2030, up from 22 mta in 2016, with Bangladesh alone estimated to import around 17.5 mta by 2025.

Two floating LNG terminals are being developed at Moheshkhali island in Bangladesh in the Bay of Bengal, the first slated to start importing in 2018, a project developed by US-based Excelerate Energy Bangladesh. A second import terminal is being jointly developed by Summit Group and General Electric with construction scheduled to start in September 2018. The two terminals will have a combined capacity of 7.5 mta.

Two more FSRUs are planned in Bangladesh with India’s Reliance Group expected to get involved in at least one project. State-owned PetroBangla is also looking to build a small-scale LNG terminal in Chittagong with a view to completion in 2018.

Southeast Asia growth

In Southeast Asia, Energy World is building a 3 mta regasification terminal in Pagbilao, the Philippines, scheduled to start in 2019-20.

Myanmar is another emerging economy that has huge potential to become an LNG importer, but the country needs a more transparent regulatory framework before stakeholders can feel confident about investing there.

“The ability of the government to see through projects is another question,” Mr Patankar said.

Indonesia is expected to become an LNG net importer by 2019-2020, according to Pertamina general manager LNG sales Irma Surya. Thailand has an ambitious target to secure 35 mta of LNG imports under long-term contracts by 2036, up from today's 5.2 mta.

Among the various projects across the Asian region, supportive governmental polices are vital to maintain the LNG industry’s long-term prospect, according to International Energy Forum secretary-general Dr Sun Xiansheng. “The role of policy support is very important to ensure the demand for LNG in Asia,” Dr Sun said.

The city-state of Singapore is a prime example of having supportive policies aimed at elevating the country to the position of regional gas hub by building up infrastructure and introducing new business initiatives. Today about 95% of Singapore’s electricity generation comes from power plants fired by natural gas, up from 26% in 2001.

Singapore imported some 2.5 mt of LNG in 2016 but the existing facilities can already cater for import volumes of up to 9 mt, according to Galway Group’s Mr Patankar. “Singapore’s infrastructure can meet demand for the future. Additionally Singapore is planning to set up an FSRU on the east coast as a backup facility in case of downtime at the existing terminals,” Mr Patankar said.

The decline in piped gas imports from Indonesia and Malaysia will help make Singapore increasingly reliant on LNG.

Wider seaborne trade

From a shipping perspective, the biggest change under way is that LNG is becoming a globally seaborne traded commodity due to the change in its pricing structure, according to Bernhard Schulte Shipmanagement corporate director Angus Campbell.

“We have seen the break in the link with oil on LNG prices, and that is making natural gas a more competitively priced fuel, which is encouraging Asian countries to establish LNG import facilities such as FSRUs,” he said.

Mr Campbell noted how the introduction of an FSRU can, in turn, prompt the existing pipeline producers to reconsider their pricing and make the LNG market more competitive overall.

“As we look at environmental concerns, the decrease in the use of coal for power generation and the increase in the supply of natural gas as a comparatively clean fuel are reasons why we are seeing various countries in Asia establishing more LNG receiving terminals,” he said.

Société Générale managing director Ben Arnott forecast that 20 new countries will be importing LNG by 2025 and that “a number of them are in Asia”, driven by an increasing urge to generate power via LNG.

However, he adds that the import volumes are likely to be small, in the range 0.5 to 1 mta per project, and that an aggregation of many small buyers may be necessary by then. This means that long-term LNG contracts under standard terms seen today may not fit the model of the future.

Meanwhile, Mr Arnott says, about 80 mta of long-term contracts are expected to mature over the next four to five years and up to 140 mta by 2025.

“FSRUs are also a relatively new market, with 30-35 prospective projects in regions including south Asia and southeast Asia. The projects are cost competitive at 30-45 US cents per MBtu depending on the throughput, and they are considered a flexible solution for underserved markets,” Mr Arnott said. “The FSRU’s portability also offers greater investment protection.”

What's more, Mr Arnott pointed out, financing is readily available for FSRU projects as “banks are not investing in coal – and that includes my own bank – and the oil and gas projects".

China and India

The giant markets of China and India obviously cannot be ignored. Wood Mackenzie head of Asia gas and LNG, Kerry-Anne Shanks observed that China’s demand could reach 330Bn by 2020 from 206Bn m³ in 2016.

The projected LNG demand growth is underpinned by an agreement inked in May this year for China to buy gas from the US and to enter long-term supply deals with American operators.

“It was the clearest signal to date of the mutual support by US president Donald Trump and Chinese leader Xi Jinping for increasing bilateral LNG trade. Before the two leaders met last year, China’s importers had yet to commit to long-term supply directly from US projects,” Ms Shanks said.

The deal with the US is in line with Beijing’s aim to increase the role of natural gas in the country’s energy mix to 8-10% by 2020 from 6% in 2016. “Wood Mackenzie estimates that LNG will capture a third of China’s gas demand growth out to 2025,” Ms Shanks said.

India’s strategic priority is to increase its share of gas in its energy mix to 15% by 2021 from 6.5% today and LNG demand is projected to reach 30 mta by 2022, almost double the current throughput, according to data from Platts.

However, India faces serious obstacles to the expansion of its LNG demand due to logistics bottlenecks across the country’s pipeline and terminal infrastructure. There has been some improvement of India’s facilities as the Petronet-operated Dahej terminal has increased its capacity to 15 mta from 10 mta. Moreover an additional 14,000 km of domestic gas pipelines is under construction or proposed, adding to the existing 16,000 km.

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