Page 4 - GLNG Week 40 2022

GLNG COMMENTARY GLNG

How Asia is responding to

sky-high LNG prices

SOARING global LNG prices have triggered must therefore resort to alternative fuels such as
COMMENTARY significant cuts in Asian LNG imports over coal and oil. In Northeast Asia, buyers have tra-
recent months, with the extent of these largely ditionally been incentivised to switch from coal
dependent on countries’ levels of spot market to gas for cost reasons, as well as environmental
exposure, fuel-switching options and their eco- considerations, but this is no longer the case.
nomic responses. Countries in Southeast Asia LNG now faces increased competition from
have been hardest hit, while the likes of India, domestic coal and gas producers, and the coun-
China, Japan and South Korea benefit from hav- try has also seen a rapid expansion in renewables
ing more fuel-switching options, and the ability capacity. This said, China has now seen a huge
to pay higher prices. resurgence in coal use, as had been anticipated.
Since Russia’s invasion of Ukraine, the Asian Instead, the country has opted for more pipeline
and European LNG markets have essentially gas supply from the likes of Russia and Turk-
switched places. Asia is now the LNG market menistan, as well as Russian LNG, which trades
balancer, while Europe now offers a premium at a discount nowadays.
price, in light of its need to replace substantial In India, fuel oil, LPG and domestic gas have
losses in Russian gas flow. Another important helped offset the reduction in LNG imports, and
factor has been China’s zero-COVID policy, as high prices could mean some new regasification
well as a slowdown in the country’s housing sec- projects are delayed. Oil-fired power generation
tor. China is on track to see a record decline in has seen a significant increase across South Asia,
LNG imports this year – a 14% decline accord- but some markets still face blackouts – most
ing to Wood Mackenzie. This compares with a notably Pakistan – as demand-side solutions
18.3% climb in imports in 2021. In the year up have been inadequate.
to the end of September, Asian LNG imports fell In Japan, supply security concerns have
by over 7% and are likely to remain subdued, as prompted efforts to expand LNG storage,
Europe still needs more LNG and China’s eco- increase imports of fuel oil imports, and restore
nomic slowdown continues. previously mothballed thermal power plants
(TPPs). The government is also looking to boost
Fuel-switching options the number of active nuclear reactors to 10 by the
Limited gas storage options in Asia mean LNG end of the year from five currently, and increase
buyers cannot simply use stored gas at times the number to 17 by the end of 2023. Japan is also
when spot prices are considered too high. They considering the construction of next-generation

P4 www. NEWSBASE .com Week 41 14•October•2022