LNG Demand in Asia - Are Growth Trends Likely to Continue?

Japan and South Korea report gas statistics to the International Energy Agency, but the reporting of sectoral consumption patterns in other Asian markets is infrequent and lacks transparency. Gas and LNG consumption growth is generally policy driven. While high gas and LNG prices may dampen demand, this is a lagged phenomenon and may equally be due to slower economic growth. For these reasons, predictions of future LNG demand growth are difficult to make with any confidence and require frequent adjustment in the light of current import data. Given the region’s importance for future LNG consumption, and the lag of (in general) four to five years from FID to LNG project start-up, this adds to the cyclicality of the LNG sector.

This article describes the main Asian LNG markets and their outlook, with key insights summarized in the conclusion.

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LNG imports: annual growth rates in selected Asian markets

Data for 2005–2010 were not available for China.

Japan

With LNG imports of 111 billion cubic metres (bcm) in 2018, Japan remains the largest LNG market, with very small levels of domestic production (including synthetic natural gas). Almost two-thirds of its LNG imports are consumed in the power sector, followed by industry at 18 per cent; residential and commercial use account for the balance. The Fukushima disaster of 2011 saw Japan increase its LNG imports by some 27 per cent as LNG, oil products, and coal provided the power generation lost as Japan’s nuclear fleet was gradually taken offline. The decline in LNG imports from 2015 to 2018 came in response to the rise in solar and to the restart of nine reactors beginning in late 2015.

Three factors are likely to drive the level of future Japanese LNG consumption: the pace and extent of further nuclear restarts (of the 50 plants operable at the time of the Fukushima disaster, 20 have, or are likely to be, permanently retired), the further expansion of renewables, and the success of aggressive government policy in reducing national energy consumption through increased efficiency. The outlook is for a decline in future LNG imports which by 2030 could be between 77 and 94 bcm per annum (bcma). March 2019 LNG imports were down 8.1 per cent from March 2018.

China

The Chinese appetite for growing and highly seasonal LNG imports has generated headlines over the past three years and has been deemed responsible for the winter peaks in Asian LNG spot prices over this period. In 2018 China imported 69 bcm of LNG. Chinese gas demand grew by 15 per cent from 2016 to 2017 and by 13 per cent from 2017 to 2018. Gas demand growth has been to a large degree driven by government policy to switch from coal to gas, mainly in the residential and industrial sectors. The likely extent and pace of this dynamic in the future is uncertain, especially in the context of slowing economic growth and international trade. While domestic production continues to grow (meeting 56 per cent of Chinese demand in 2018), China is relatively mature in terms of conventional gas resources. The extent to which shale gas, tight gas, coalbed methane, and synthetic gas can maintain domestic production growth is a concern.

China imports some 16 per cent of its supplies as pipeline gas from Turkmenistan and Central Asia and minor amounts from Myanmar. At the end of 2019 it will begin importing Russian gas from the Power of Siberia pipeline, drawing on East Siberian fields. Whilst China represents the fastest-growing destination for new LNG supply projects, its demand could wane should the momentum of the coal-to-gas policy slow. At present spot/short-term LNG represents a low-cost supply source; otherwise gas is relatively expensive in China, being either oil-indexed contract pipeline or LNG or high-cost base domestic supply. On the upside, the failure of domestic supply to grow significantly could increase LNG demand in general. Projections of China’s LNG requirements in 2030 range from 132 to 163 bcm. Wood Mackenzie projects that ‘economic slowdown, a more considered approach on coal-to-gas switching and increased domestic infrastructure availability will mean LNG demand will slow in 2019, from the 40–45 per cent growth we have seen in 2017 and 2018.'

South Korea

In 2018, South Korea surprised the market by importing 57.7 bcm of LNG—a 21 per cent increase over 2017. Nuclear outages in 2018 (due to component safety concerns) saw an increase in LNG consumption in the power sector. This appears to have been a temporary factor, with imports in February 2019 falling back below those of 2018 on a monthly basis. Longer term, South Korea’s policy of reducing its nuclear and coal generation should favour LNG. The outlook for South Korea’s LNG requirements in 2030 ranges from 61 to 69 bcm, as LNG is emphasized by government policy at the expense of nuclear and coal-fired generation.

Taiwan

In 2018, Taiwan imported 22.9 bcm of LNG. Its LNG imports have been growing at 3–4 per cent per year from 2015. Like South Korea, Taiwan wishes to reduce its nuclear generation capacity, although it is unclear whether the original target of 2025 will be met. It is expected that LNG import growth will continue at 2–3 per cent per year, with the outlook for 2030 at between 29 and 33 bcm. Taiwan is expanding its LNG import capacity with a goal of reaching 41 bcma of nameplate capacity by the late 2020s.

India

Despite its potential for significant future economic growth, the outlook for gas and LNG demand in India is problematic. In part this relates to the complex system of administered prices and supply allocation between demand sectors, the lack of a plan to build an extensive gas transmission infrastructure across the country, and the lack of a substantial domestic space-heating requirement to anchor this. India’s domestic gas production declined in 2010–2016 (as a consequence of problems with the KG- D6 field reservoir), but this appears to have stabilized at around 32 bcma in 2017 and 2018. Gas consumption jumped from 50.8 bcm in 2016 to 61.2 bcm in 2018. LNG imports have benefitted, increasing from 20.9 bcm in 2015 to 29.6 bcm in 2018. In part this has been due to temporary tax reliefs/subsidies to encourage the use of LNG in power generation. India is embarking on new LNG regasification terminal projects: the new Ennore terminal (5 million tonnes per annum [mtpa]), the expansion of the existing Dahej terminal from 2.5 to 17.5 mtpa, and the Dharmra terminal on the east coast will be completed by 2022. The completion of the Kochi pipeline and Dabhol LNG complex breakwater is also intended to safeguard against typhoon disruption by 2022.

India’s future LNG demand depends on future growth in the industrial sector (particularly fertilizer manufacture) and the power sector (where some form of government support is required to bridge the gap between the cost of coal- and gas-fired generation in the interest of ameliorating particulate pollution). While India has the potential to become a large LNG-importing market, infrastructure constraints preventing gas from reaching customers and the affordability of some sectors will continue to suppress demand outlooks. An indicative outlook for India’s 2030 LNG imports ranges from 42 to 52 bcma.

Indonesia

The world’s largest LNG exporter until 2005, Indonesia has experienced a steady decline in LNG exports as its domestic demand has outstripped domestic production growth. Indonesia also exports pipeline gas to Singapore (7.3 bcm in 2017, although this is expected to decline and end in 2025) and Malaysia (0.7 bcm in 2017). Indonesia’s gas demand is expected to see modest growth in the future while its production, apart from increases due to projects such as Tangguh coming onstream, is expected to see gradual, long-term decline. In recent years some 15 per cent of Indonesia’s LNG output has been supplied to its own archipelago markets. This trend is expected to continue; by 2030 Indonesia’s LNG position may range from being a net exporter of 3.5 bcma to a net importer of 2 bcma.

Malaysia

Malaysia’s LNG exports have plateaued since the late 2000s/early 2010s. Like Indonesia, Malaysia is focusing on coal for power generation growth requirements. Gas consumption declined gently in the mid-2010s but recovered in 2017 and 2018. The outlook for Malaysia is driven by the relative growth of demand versus a mature and slowly declining domestic production base. Malaysia already imports LNG from other countries to meet demand in its archipelago markets. As domestic production declines, Malaysia’s LNG production surplus is expected to shrink during the 2020s. By 2030 its net exports of LNG could range from 6 bcma to a deficit of 1 bcma.

Thailand

Thailand’s gas has been somewhat stagnant for the past five years. Its domestic production has been falling, leading to a rise in LNG imports from 1.8 bcma in 2014 to 5.6 bcma in 2018, as pipeline gas imports from Myanmar declined from 9.7 to 8.3 bcma from 2014 to 2017. Assuming modest future growth in gas demand and stable future pipeline imports, the key to future LNG import prospects is the underlying decline in future domestic production. The outlook for 2030 is for 22.5 to 26 bcma of LNG imports.

Singapore

With gas dominating in the power sector, demand is growing at just under 3 per cent per year. With no domestic production, Singapore’s non-LNG supply comprises pipeline imports from Malaysia and Indonesia. It is Singapore’s policy to phase out pipeline imports by 2025 and import only LNG. Despite a reduction in LNG imports from 2017 to 2018 (from 3 to 2.4 bcma), the outlook, assuming domestic production decline and the progressive reduction in pipeline imports, is for 2030 LNG imports in the range of 18 to 22.5 bcma.

Pakistan

Gas demand for the past four years has been growing at some 4 per cent per year, and domestic production has been static and more recently declining. The latent demand for gas in power generation is being partially met by oil-product-fuelled power generation resulting in brown-outs when this fails to meet demand. Assuming that floating storage and regasification units (FSRUs) and perhaps a land-based regasification unit are installed by 2030, Pakistan’s LNG imports could range from 21.5 to 27.5 bcm.

Bangladesh

While gas demand has recently been fairly static, this is in part due to constrained supply, as domestic production has reached a plateau. LNG imports commenced in 2018. The potential of this market is driven by the underlying decline in domestic production and the ability to provide (in the first instance) additional FSRU LNG import infrastructure. By 2030 LNG imports could range from 14 to 16.8 bcma.

Vietnam

Pakistan and Bangladesh provide an analogue for Vietnam, whose domestic production has peaked and is in decline. Assuming FSRUs are positioned by 2020, imports could rise by 2030 to a range of 8.3 to 10.2 bcma. Some 10 LNG terminals are currently at the planning stage, and domestic coal supplies are becoming progressively more expensive to extract.

Philippines

The Philippines could follow Vietnam in becoming an LNG import market as its domestic production declines in the early 2020s. LNG imports could start in 2023, and by 2030 could be in the range of 1.7 to 3 bcma.

Asian LNG imports: 2018 Actuals and Future Trends

Conclusions

Asian LNG demand, with a potential background of slowing GDP growth due to global trade barriers, is currently highly dependent on the continued strength of Chinese LNG imports. Other Asian LNG markets face a variety of demand drivers. Key trends and questions at the country level include the following.

• Japan: The pace and extent of future nuclear restarts, the energy conservation drive, and renewables capacity growth are all likely to influence LNG import requirements.
• China: To what extent will the current policy-driven coal-to-gas switching continue to bolster LNG demand? Factors that may discourage this trend include increased Central Asian and Russian pipeline import volumes and a potential GDP-driven consumption slowdown. Factors that may strengthen it include the drive to reduce particulate emissions and the challenges to high-cost domestic production, particularly of nonconventional gas.
• India: From a GDP perspective, this market has potential, but the lack of a space heating market to drive significant gas transmission networks introduces downside risk.
• South Korea and Taiwan: These countries’ pace and commitment to reducing nuclear and coal generation is key but uncertain.

• Indonesia and Malaysia: While domestic production is mature, domestic gas demand is held in check by a preference for coal in power generation. This may change if government policy evolves. The point at which these countries become net LNG importers is highly sensitive to such developments.

• Bangladesh, Pakistan, the Philippines, Singapore, Thailand, and Vietnam: With pipeline gas supply or domestic production having established gas as a key part of the energy mix, the ongoing decline of existing gas supply sources has set the stage for growing LNG imports.

That said, the unpredictability of government energy mix policies (including issues related to CO2 and particulate pollution and nuclear phase-out/restart), and of the extent to which domestic production decline will necessitate LNG imports, makes projections highly uncertain.

You can download the Oxford Energy Forum – LNG in Transition: from uncertainty to uncertainty – Issue 119 here.

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