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Demand Drop Raises Questions for LNG in Asia

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Was last year's LNG demand decline in Asia a temporary blip, or is the region trending toward a lower growth outlook? It's a critical question for LNG markets, since Asia is expected to drive global demand deep into the future. A strong recovery in Asian LNG demand — mainly from China — this year would also have significant ramifications for Europe, which is now heavily reliant on LNG imports after Russia cut off most pipeline exports to the EU last year. While China's reopening from Covid-19 restrictions offers significant hope, LNG prices will go far in determining the extent of a recovery in Asian demand in 2023. Asia's LNG imports dropped by more than 7% last year. Sky-high prices in the wake of Russia's invasion of Ukraine, an economic slowdown in China due to Beijing's "zero Covid" policy and Europe's emergence as the new premium LNG buyer conspired to end a long established growth trend in the region. Asia was an unexpected casualty of Europe’s gas and energy crisis, prompting governments in the region to rethink the role of gas/LNG and other alternatives in their energy mix to help them achieve energy security and carbon neutrality goals. LNG imports by price-sensitive markets suffered most in 2022, with India, Pakistan, Bangladesh and China recording drops of 15%-20%. With only around 10 million tons per year of new LNG capacity expected to start up this year and continuing competition for cargoes between Asia and Europe, prices should remain elevated this year. Spot LNG prices in Asia averaged $33 per million Btu in 2022, spiking as high as $65/MMBtu at times, according to Energy Intelligence data. Most analysts expect them to average at least $25/MMBtu this year.

China, the world's second-largest LNG importer after Japan, is now grappling with a surge in Covid-19 infections after its recent decision to abandon "zero Covid." But an expected uptick in China's industrial activity after the Lunar New Year would boost the country’s gas demand, which posted its first annual decline in 2022. Price affordability and a ramp up of new term LNG contracts will ultimately dictate China's appetite for spot cargoes. Chinese buyers use domestic LNG truck prices, which averaged $20/MMBtu last year, as their price threshold for international LNG prices in order to seek arbitrage opportunities. Apart from LNG, they could consider potentially lower-cost alternatives such as coal, domestic gas supplies or ramping up volumes from China's 38 billion cubic meter per year pipeline gas contract with Russia, as they did last year.

Energy Intelligence’s Research & Advisory (R&A) unit expects China’s LNG imports to recover to 67.2 million tons this year from 63.9 million tons in 2022. This would still leave them lower than 2021’s record 78.8 million tons. Under R&A's base case outlook though 2040, Chinese LNG demand does not bounce back to 2021 levels until 2026. Oxford Institute for Energy Studies’ China Energy Research Director Michal Meidan said Beijing’s target to boost the share of gas from 9% of its energy mix to 15% by 2030 (equivalent to around 600 billion cubic meters) looks increasingly ambitious. “It is still unclear whether we should now expect a lower peak gas demand (550 Bcm in 2030) or a delayed but higher peak (around 650 Bcm in the 2040),” she told a recent webinar.

The spillover of Europe’s energy crisis to Asia has prompted Asian governments to make drastic energy policy changes, including a comeback for nuclear power, a bigger push for offshore wind and greater momentum for domestic gas projects — all of which could have LNG demand implications. In a reversal of previous nuclear-phase out policies, Japan and South Korea are now pushing to restart idle reactors, grant lifetime extensions and even build new advanced reactors, while Southeast Asian countries debate whether to build the first nuclear power plant in the developing region. Vietnam will review the feasibility of multiple LNG-to-power projects under consideration while scaling up offshore wind. Despite Europe's emergence, LNG sellers say Asia is still the biggest growth market due to its potential for coal displacement and declining gas production. R&A Director Ian Nathan expects Europe to remain the premium LNG market for several years, but that European efforts to reduce gas use will accelerate. Price-sensitive Asian growth markets will “catch up” around mid-decade when supply is available and prices are more palatable, he says, pointing to challenges with gas alternatives including grid issues and land availability/scalability with renewables, and long timelines for new nuclear projects.

LNG Imports by Key Asian Markets
(million tons)2023*2022202121-22 %Chg.
Northeast Asia
China67.263.478.8-19.5%
Japan69.973.174.3-1.6
South Korea46.746.746.11.3
Taiwan23.720.319.25.7
South Asia
India21.219.824.4-18.9
Pakistan 6.96.88.6-20.9
Bangladesh4.64.45.2-15.4
Southeast Asia
Thailand8.48.76.729.9
Singapore43.93.82.6
Total252.6243.2263.3-7.6%

Topics:
LNG Demand, LNG Forecasts, LNG Supply, Low-Carbon Policy, Policy and Regulation, Nuclear Policy
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