China to dominate demand outlook
Country's thirst for natural gas maintains upward trajectory
Asia is and will continue to be the dominant destination for liquefied natural gas volumes in the coming decade as demand is maintained among established buyers and emerging markets import rising volumes to offset declining indigenous production.
By 2025 the continent's thirst for the fuel is expected to rise from 129m tonnes in 2010 to 304m tonnes.
Over 70% of the world's annual LNG trade has been consumed in Asia since 2013, a percentage share that is set to be maintained until the middle of the next decade at least, as countries show preference for natural gas over coal and oil products.
Over the medium term, the continued uptake of natural gas will vary among countries with China—which only started importing LNG in 2006—predicted to import by far the greatest volume globally. Around 2024-25, the country is expected to overtake Japan as the number one LNG buyer.
China's demand for LNG is being driven by its sheer population growth and tightening policy measures to urgently improve air quality. This was seen most starkly last winter, when the government ordered city factories and households to switch from coal to gas for heating purposes, leading to a run on LNG demand which almost single-handedly eradicated an anticipated surplus across global markets.
304m tonnes—Asia's expected LNG demand, by 2025
The country will continue to lead a strong uptake of natural gas in power generation, transport, building and domestic power and heating purposes, particularly in the burgeoning cities and regions bordering the East and South China Seas, where LNG can be delivered close to consumption zones.
This is despite steady existing pipeline imports from Central Asia and Myanmar via the Central Asia-China and Sino-Myanmar pipelines, commissioning of the Power of Siberia pipeline in late-2019 and start-up of the Central Asia-China pipeline in 2022. Over the medium term, China is also unlikely to see significant new production in shale gas to meet demand growth, meaning its reliance on LNG imports will continue unabated.
But it's not the only country set to see strong demand growth for fuel in the next decade. Pakistan, Thailand, Bangladesh, Singapore, Indonesia, Malaysia, the Philippines and Vietnam are also set to import rising volumes of LNG over the medium term, albeit starting from a low base. While some of these countries—such as Malaysia and Indonesia—are perhaps better known as LNG exporters. But a decline in indigenous gas production, and deteriorating economic health have forced some to look to global markets where LNG can be found cheaper—and cleaner.
These countries prefer small volumes of LNG delivered on flexible terms, which is putting pressure on large-scale LNG sellers to change how they do things. And the market is becoming a lot more competitive, as US exporters Tellurian and Cheniere, and low-cost producers such as Qatar, offer competitive rate.
By contrast, established LNG buying nations like Japan, South Korea and Taiwan—and to a lesser extent India—will see a stabilisation or only marginal growth in LNG import volumes up to 2025.
In Japan, which will be over-contracted for LNG until 2022, imports are set to decline slightly up to 2025. While industrial demand for gas has been growing, use of gas by households and the commercial sector has been falling. Gas could be displaced further if 6.5 gigawatts of nuclear capacity returns to the system as predicted. Similarly, renewables are making inroads into the country's power sector with hydrogen fuel cells following on behind as the nation seeks to cut its greenhouse gas emissions.
Similarly, South Korea will see only modest growth in gas demand over the medium term as power demand flattens and renewable energy increases its share of the fuel mix.
In India, the fertilizer and industrial sectors will drive gas demand in the medium term as the country attempts to replicate China's success as an exporter of manufactured goods. Low domestic gas production and rising demand will lead to increased LNG imports in India through 2025 and beyond, facilitated by investment in new regasification terminals and FSRUs, the first one of which went live in early May this year.
On the demand side, Asia's insatiable appetite for LNG means it will continue to be a prime destination for exporters in the decade ahead as suppliers in Australia, the US, Russia and Qatar target premium-priced markets and gas-hungry buyers.