Most Asian countries will need to import more gas to meet demand growth, as production fails to grow at the same pace as consumption. Over the medium term, half of the anticipated increase in gas consumption will require additional imports. Due to the geographical specificities of the region, LNG is expected to continue to play a leading role. Hence, Asia is forecast to absorb 80% of the incremental LNG imports over the medium term.
Only pipeline gas from the Former Soviet Union (FSU) and, potentially, Iran could compete with LNG to meet this growing demand and the country the most likely to be targeted is China, as illustrated by the recent Russia-China gas pipeline deal.
There are two primary LNG issues: (1) The pricing mechanism with oil indexation which currently makes oil-indexed gas prices much higher than hub-indexed gas prices; (2) The relative inflexibility of the LNG supply chain with final destination clauses (FDCs) and take-or-pay clauses.
Challenges for LNG in Asia: Global LNG trade is expected to expand by one-third, to 450 bcm, by 2019 and is likely to increase even further, based on projects currently at the planning stage.
Even among major Asian LNG exporters such as Indonesia and Brunei, LNG exports could decline over the coming years. Over the medium term, non-OECD Asian gas markets will play a key role in attracting additional LNG supplies. By 2019, they will import close to 150 bcm, more than Japan, which is currently the largest LNG importer. China will rank as second LNG importer, having taken this position away from Korea. LNG will play a key role in China, as the country will become the second largest net importer behind Europe by the end of the decade.
In Japan, methane hydrates could provide an alternative supply source in the longer term, but this is a remote possibility. Both Japan and Korea could also import pipeline gas from Russia, but this, too, is considered unlikely, at least in the short to medium term. China still relies considerably on its domestic production, but there is tremendous uncertainty regarding the evolution of unconventional gas production, notably that of shale gas. Shale gas production in China is a major uncertainty for future LNG needs. India faces uncertainties similar to those of China regarding future domestic gas production, both conventional and unconventional. In looking at which countries could supply significant volumes of LNG over the next ten years, four regions clearly take the lead: North America (the United States and Canada), Australia, East Africa (Mozambique and Tanzania) and Russia.
Here is my conclusion:
Join the Conversation: Do you Agree with Avinash? What are the challenges for LNG in Asia? Leave your comment below.
If you'd like to know more about the "Regional Market Outlook for Asia: Future Forecasts for Gas & LNG" attend our upcoming Gas Asia Summit (GAS) which takes place from 26 to 28 October in Singapore.
GAIL India is also presenting a case-study on bridging the gap between large and small scale LNG players. For further details of the programme, please download the event brochure.
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