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Uncertain future of Asian LNG Market

Published on 03/15/2012
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Probably one of the hottest commodities around today is LNG. The global gas markets have gone through a lot of unexpected changes in the last couple of years. Putting the market outlook completely upside down. First there was the shale gas revolution in the US and then last year there was the aftermath of the Fukushima earthquake. This not only caused much more demand for LNG in the Asia Pacific area, but another unexpected outcome was that Germany put a ban on its nuclear power stations by 2022. Capacity that most likely will be replaced by gas fired plants. But there is more.

In North East Asia the original dominant market players Japan, South Korea and Taiwan are eying a lot of newcomers to the market, such as Thailand, Vietnam and the Philippines. However, the landslide change will come from China as that country will significantly increase the share of gas in its energy mix. Causing an increase in demand for LNG. Whether that will remain that way is still uncertain. China has enormous reserves of unconventional gas in its soil. However, the problem is that the successful drilling techniques used in North America does not seem to work for China. So it might take years to come with a technique that would work for China.

To meet their demand the Chinese are looking first at Australia, where huge investments are being made to develop its unconventional reserves that will mostly come online after 2015. With all these new projects coming online Australia is likely to replace Qatar as the world’s largest exporter.

A threat for Australia might possibly come from the US. Before the shale gas production explosion the US companies did prepare themselves for a huge increase in LNG imports. With the current abundance of local gas supplies the import of LNG has almost come to a standstill and gas prices in the US have plummeted as a result. To monetize on this supply surplus there are several projects to build export facilities that could supply the LNG hungry Asian markets. However, there is a lot of opposition to these plans and pressure from the politicians on FERC not to grant all the permit requests. The idea behind this is that these exports might cause the local gas prices to rise and take away the current competitive advantages for the US industrial companies. As the jury is still out there, it is uncertain what the outcome is going to be.

Singapore wants to position itself as the LNG trading hub in Asia by building a new LNG terminal and tapping on its trading infrastructure already in place for the oil trading market. Whether this ambition will materialize is still uncertain.

There are several new applications under consideration, like using LNG as fuel for ships and for trucks. It is uncertain what the impact of all this will be on the global demand for LNG.

Due to all the uncertainties as discussed before and others like the competition from Europe for the same supplies it is hard to forecast what the LNG market in Asia will look like by the end of this decade. One thing is for sure there will be many challenges and opportunities for companies involved in LNG markets all across the globe, but particular in Asia.

We are currently working on a report about the future of the Global LNG Markets and that for Asia in particular. We plan to finish this report in the coming weeks. If you want to buy this report in the pre-sale, we can offer you a 20% discount. You will then not pay USD 1250, but only USD 1000. Please click here to order your copy now.