Page 7 - AsiaElec Week 04 2021

AsiaElec COMMENTARY AsiaElec

Reports have begun to emerge, however, said: “[I]t did get really cold, and suddenly they
that question the long-term viability of such had to serve all this new demand.”
price volatility, noting that as winter gives way Chinese buyers then re-entered the market
to spring heating demands will ease, and so too in pursuit of additional LNG cargoes to shore
will prices. up existing supplies that were put under intense
strain. While the surge in demand has been
Buyer frenzy welcomed by developers with LNG projects on
The director of energy, climate and resources the backburner, backing future prices based on
at political risk consultancy Eurasia, Henning a volatile set of supply and demand factors may
Gloystein, has argued that the driving factor be unwise.
behind record gas prices is China’s shift from Gloystein argued that the price spike would
coal to gas. not last much longer, as the cold season was near-
Gloystein, in an interview with CNBC this ing its end, and with it demand would recede. He
week, pointed to estimates that China had said: “This is probably the peak of the spike.”
converted more than 10mn households from Regardless, Asian buyers would be well
coal-generated heat to gas in 2020. advised to treat the current price high as an early
China has been converting coal-fired heat- warning of a bigger problem that is on the hori-
ing systems to cleaner burning gas for years as zon. Prior to the pandemic, global LNG supply
it seeks to reduce air pollution in the country’s was widely projected to fall short of demand by
cities. Its efforts led to severe supply shortages in the middle of decade, owing to a growing polit-
2017, which prompted a rethink of the govern- ical focus on carbon emissions, general rates of
ment’s conversion strategy of adopting a slower, economic development and a slowdown in FIDs
steadier approach to the process. for additional liquefaction capacity.
In the years since, however, the country has Coronavirus (COVID-19) compressed
built additional gas storage facilities as well as developer budgets around the world in 2020,
new piped gas and LNG import capacity. This making it harder than ever before to finance gas
has paved the way for both the central and local export projects that cannot secure foundational
governments to resume the pace of coal-to-gas offtake agreements. With Asia’s demand for gas
conversions. only anticipated to grow in the coming decades,
The problem has been that while the country buyers need to prepare now in order to avoid
has prepared for harsh winters, temperatures this being caught out by future supply shortfalls cre-
year fell to their lowest level in decades. Gloystein ated by spot market short-sightedness. ™

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