Asia's new buyers
The region's established LNG importers need less gas, but a crop of emerging economies offer succour-and risk-to exporters
Lower-than-expected liquefied natural gas demand in northeast Asia's mature gas markets of Japan, South Korea and Taiwan means exporters are casting further afield for buyers.
The good news for exporters is that new LNG customers are emerging in southeast Asia offering the potential to absorb some of the excess supply-provided sellers can offer cheap enough gas, and flexible delivery time-frames and volumes.
Countries looking to increase their LNG use in the coming decade include China and India, with demand also emerging in Singapore, Thailand, Indonesia, Malaysia, Pakistan, Bangladesh, Vietnam and others.
While some of these countries presently account for a small share of total Asian LNG imports, growth in gas-fired power generation and declining indigenous gas production are combining to make them, together, a significant new potential market.
A recent study by the Oxford Institute for Energy reckons India, Vietnam, Bangladesh, Pakistan, Malaysia, Indonesia, Thailand and Singapore combined could import between 150bn cubic metres and 200bn cm a year of LNG by 2030, compared with under 50bn cm/y at present.
Short-term signals suggest their emergence is underway. In 2015, Asian markets accounted for most of the growth in global LNG imports, says the Energy Information Administration (EIA). It predicts that gas demand from non-OECD Asian nations will grow faster than anywhere else between now and 2040, accounting for 40% of the world's total extra consumption in that period. As a region, by 2040, it will consume more than any other.
At 63%, China will account for the lion's share of this increase as it switches from coal to natural gas in power generation, leading to an average 6.2% per year rise in gas demand, from 5.1 trillion cubic feet (144bn cm) in 2012 to 27.5 trillion cf by 2040, the EIA says. While some of this increase will be met by indigenous production, LNG imports are expected to account for a rising share.
In India, strong growth in LNG demand to offset declining gas production is expected to lead to a 6.7% per year average increase in gas use, to 3.9 trillion cf per year by 2040. In September, India's Dahej LNG terminal imported two cargos from Cheniere Energy's US-based export facility Sabine Pass, an indication that India will source supplies from far afield if the price and delivery options are right.
Indonesia and Thailand are also expected to see rising demand growth as they switch from coal to gas use in electricity generation and, in the case of Thailand, indigenous gas production drops off. To meet its short-term needs, Indonesia has signed two LNG-import contracts with Cheniere for a total 1.5m tonnes a year, the first of which is due to start in 2018 and the second in 2020.
Minor players grow
In less established gas markets, lower prices and greater availability of supply in the Asian market is helping drive LNG-import growth. Spot cargoes are growing especially prevalent, thanks to a halving in their price to about $5 per million British thermal units.
Qatar, the lowest-cost supplier to Asia, has already shown its flexibility and is undercutting other sellers into the region. RasGas, for example, has already signed long-term, competitively priced gas-sales agreements with Pakistan. It also renegotiated older contracts with China National Petroleum Corporation and India's Petronet LNG.
Citibank says it expects "this medium-term oversupply will create opportunities for emerging economies to increase LNG use at a cheap price" while noting that it expects the glut to last until 2022.
In smaller gas markets such as Thailand, Singapore, Malaysia and Bangladesh, the deployment of floating regasification and storage units (FSRUs) is helping new buyers access LNG supply. FSRUs offer a fast and cheap way to meet short-term needs in markets with varying seasonal demand or which are too small or inaccessible for land-based import facilities.
In Asia-Pacific, the growth of FSRUs has been modest so far-deployed on a small scale in China, Indonesia and Pakistan. India and the Philippines are expected to commission more facilities in 2016-17.
For LNG exporters, these smaller new buyers offer opportunities but also risk, particularly around credit-worthiness, which tends to be lower than for established customers.
Delays to building import infrastructure due to poor investment frameworks, governance or end-user credit-worthiness demands a more pro-active marketing stance and some clever risk management. In such cases "the use of floating LNG regasification units is an added incentive to ensure that LNG supplied is paid for," says the OIES.