At the fifth edition of Gas Asia Summit & Exhibition (GAS) 2017 which took place last week in Singapore, buyers and sellers delved into the future direction of the global gas & LNG trade including the following key dynamics.
1. Uncertainty in supply and demand patterns but opportunities are abundant: Global oversupply will continue in the next decade and this will lead to depressed prices for LNG yet with many plants all over the world running below capacity, it adds uncertainty on future supply patterns. The market is currently dominated by new suppliers, with the ASEAN suppliers losing market share as a major exporter. Rising domestic demand in the region has also led to less exports from this region. One such contender is Australia. The country is poised to overtake Qatar as the largest LNG exporter with the recent wave of projects. Australia’s domestic gas crunch and new restriction policies set by the government could further restrain LNG exports.
2. Additional factors include competition from other sources of energy such as coal in developing countries due to its low cost. Nuclear energy on the other hand, is expected to erode the demand in Japan. According to Masakazu Toyoda, Chairman and CEO, The Institute of Energy Economics, Japan, the recommissioning of nuclear plants in Japan will impact their LNG consumption. By 2020, their consumption is expected to go down when the projected reoperation of their nuclear plants is realised. Despite coal being a dominant source of energy in the next ten years, Khurram Majeed, General Manager, Asia Pacific, Turbomachinery & Process Solutions, Baker Hughes, explained that that the growth rate will be outpaced by the growth of renewables and gas. He projects that renewables will be the fastest growing segment in the energy mix in the next decade.
3. However, for countries such as Thailand and Indonesia, the demand for LNG is expected to increase fuelled further by population and economy growth. Thailand’s demand for LNG is forecasted to be approximately 35 million tonne per annum in 2036. Mr Porrasak Ngamsompark, Acting Director for LNG Management Bureau, Department of Mineral Fuels, Ministry of Energy, Thailand, added that even with existing long term contracts, there is room for another supplier in the market. The country currently relies heavily on gas with 70 percent of their power production is powered by gas. Their domestic production will decline and this will see the nation attempting to diversify their suppliers from around the world. For Indonesia, challenges unique to the archipelago remains but Pertamina is boosting their infrastructure to meet the gas demand in different parts of Indonesia. There is also growing supply from emerging markets such as Mozambique.
4. There is a need for a price index that is relevant to the Asian market: At GAS, a number of speakers too echoed the importance of moving away from the traditional oil index to an Asian-based price index. Having a gas pricing that better reflects gas supply and demand dynamics here remains vital to the long-term prospects of the gas market. New price signals will create greater contract and market flexibility to the benefit of consumers and producers.
5. Policy support and cross regional collaborations vital to spur LNG growth: Supportive policies across the region is vital to maintain the LNG industry’s prospect in the long term. Sharing this sentiment was Dr Sun Xiansheng, Secretary General, International Energy Forum, “The role of policy support is very important to ensure the demand for LNG in Asia.”
With a strong push towards renewables and gas coupled with increased investment in infrastructure across the value chain, demand has a potential to rise. Singapore is developing itself as a gas hub by adding infrastructure and supporting new business initiatives. The injection of funds, expertise and technology can also extend beyond the geographical boundaries. For example, Japan recently announced that it will offer $10 billion in support in joint private enterprise and government projects to supply LNG or build LNG infrastructure in Asia. In Southeast Asia, Thailand is currently conducting a feasibility study for constructing a LNG distribution / receiving terminal in Myanmar, in order to facilitate onshore LNG transportation to Thailand.
6. The impact of geopolitical changes on the economy was elaborated further by Mr Simon Baptist, Chief Economist, The Economist Intelligence Unit. He shared that new price dynamics will keep oil price in a narrower range, however the Qatar crisis escalation could cause gas prices to spike. Natural gas prices will continue to converge.
With the gain in momentum in gas, the conference also dove deeper, comparing it against other renewables and coal at the roundtable session. Participants debated about the potential of battery storage, future of combustion engine and whether coal is here to stay especially with the thirst for energy from developing countries. Advancement in technology will be a disruptor in this arena. Renowned oil and gas companies are also increasingly venturing into the energy sector, including batteries.
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