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Banking on China

Asia’s big markets aren’t growing. New ones are needed

LIQUEFIED natural gas exporters should look to a familiar place if they want to ride out the supply glut and a period of weaker-than-expected demand: China. And they should pin their hopes on Beijing to help their cause.

Oversupply is about to get worse. The International Energy Agency (IEA) expects global LNG-export capacity will reach around 0.6 trillion cubic metres (0.54 trillion tonnes) by 2021, up from around 415bn cm last year.

Around 90% of this will originate from the US and Australia and almost all will come from projects that have already been sanctioned. The IEA says that barring any significant supply disruptions markets will struggle to absorb the extra volumes.

Demand in Japan and South Korea - destination for about half of the world's exports - will stagnate, and Latin America and the Middle East, previously seen as sparkling new demand dynamos, will offer only small pockets of growth.

"It is therefore clear that the trajectory of global gas markets - and how fast they rebalance - will depend on the scale of expansion in China and the rest of developing Asia," the agency says. Even so, China will only come to the rescue if new gas market and environmental regulations are put in place.

Imports this year have hardly set pulses racing: cold weather and cheaper prices increased demand by 0.9m tonnes in the first three months. Indian imports were 1.3m tonnes higher in the same quarter. Energy Aspects believes Asian LNG imports will

rise by just 1.3m tonnes this year, as weaker shipments to Japan and South Korea offset growth elsewhere. Next year, it expects the continent's imports to rise by 3.9m tonnes, or 2%, led by China, India and Pakistan.

It should be a wake-up call for exporters. Lauran Wetemans, a general manager of downstream LNG at Shell, says the industry must start working to unlock new demand. "It's about leveraging where the hubs are now in places where you can scale demand in ports and terminals," she says. "China and Europe are definitely ahead of the game so that's where we see focus. But there's potential in India and Indonesia, which are great places to compete as well."

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