LNG Market Development in Asia

Abstract

Expansion of the US natural gas resource base offers considerable potential to further develop both LNG and pipeline exports, and contributes to higher economic growth. Providing a long-term and cost-effective value chain is an ongoing challenge. Nevertheless, new markets are emerging. Traditional Asian LNG-consuming countries such as Republic of Korea and Taipei,China, and countries in Southeast Asia (Indonesia, Malaysia, Singapore, Philippines, amongst others) and South Asia (India, Bangladesh, Pakistan), as well as China, offer new markets or expansions to existing markets for natural gas. Natural gas is a fuel that can improve air quality, and reduce emissions of carbon dioxide and long-term climate risks. China, which has been a modest importer of LNG, has begun to accelerate its purchases. Yet investment in new LNG export facilities stalled from 2015 to 2016. The slow pace of FID for new projects reflects growing uncertainty over long-term demand and inadequate infrastructure in importing countries. The LNG market still lacks adequate transparency in price discovery, and while improvements are underway, the market has not yet fully adapted to delivering supplies in response to short-term shifts in demand. Financing constraints remain, so projects on their way to FID, both on the supply and demand side, face inadequate infrastructure and ongoing political risks. Governmental policies will play a critical role in the development of Asian LNG markets by reducing investment risks in new LNG infrastructure in many emerging Asian countries. Financial support and export assistance measures will also play an important role in Asia, particularly for countries that present high credit risks. Technical support would also help Asian countries that have little experience in the LNG business as they embark on LNG imports. This joint research effort recognises that world LNG markets are heading toward more liquidity and transparency, but they have yet to mimic, and may never fully replicate, the open and extensive trading patterns prevalent in the global oil market. Asian natural gas markets are undergoing an important transition, much of which is supported by prospects of growing LNG exports from the US. For the Asian LNG market to flourish, new supplies and demand centres need to grow and the full range of market participants from sellers and traders to final users such as power utilities need to have confidence that price discovery reflects fundamentals of supply and demand. In this regard, the Institute of Energy Economics, Japan (IEEJ), and the Energy Policy Research Foundation, Inc. (EPRINC) have continued their assessment of the role of destination restrictions as an impediment to arbitrage in the Asian LNG market, one of several market conditions that inhibit sustainable LNG demand in Asia. The US petroleum renaissance has been driven by technological advances that provide access to previously unrecoverable resources. These gas resources will be essential to meet long-term and rising world LNG demand, which, for the Asia-Pacific region alone, is expected to grow rapidly through 2040. This joint IEEJ–EPRINC paper presents our latest assessment of trends in the broader Asia-Pacific market, with a series of recommendations to meet the inevitable rise in LNG demand and accompanying uncertainties faced by both sellers and buyers.