Asia & Australia
In spite of an economic slowdown – as in the rest of the world – Asia remains a key market for gas and LNG. The vast majority of new LNG projects are sanctioned with Asian markets in their sights, and the powerhouse economies of China and India represent enormous latent potential for market growth.
China’s recent deals for Russian pipeline gas are a game changer for Asian gas supply, and vast shale gas potential makes for an even more different future if and when it is able to make a material inroad into the Chinese gas market. In the meantime, LNG remains a critical part of the energy mix – with vast quantities of new LNG set to hit the Chinese and wider Asian market in the coming years.
LNG from the unprecedented development of export projects in Australia has recently started to hit the market, and over the next two to three years some 55 mtpa of new LNG will be produced and sold on long-term contracts into the region. Australia’s emergence as the world’s largest LNG exporter will be completed in the next few years, and has been achieved via revolutionary coal seam gas (CSG) sourced export projects in Queensland, as well as projects in the west of the country. All have proven highly challenging (and expensive) developments, but will supply LNG for decades to come.
Much of this new LNG will be sold into China, but southeast Asia also represents a vast potential gas market. Many of the ASEAN economies are at a relatively early stage of development, with significant potential demand as their domestic gas markets develop. A decline in gas supply proximate to the main demand centres in the region should see southeast Asia evolve into a significant LNG importer in the longer term.
For the established north Asian gas markets of Japan, Korea and Taiwan, respite from the historically high LNG prices of recent years has finally arrived, with a looser market and significantly lower oil price providing a welcome drop in price.
Australian LNG projects have been victims of a terrible luck of timing. They were built at a time of unprecedented high prices, but have been confronted by construction and resourcing challenges, and unfavourable foreign exchange rates – and are now hitting the market at a time when oil prices, and hence their value, have dropped dramatically. Shareholders will be seeking to mitigate these economic challenges best they can.
On the other hand, the current low oil price environment creates tremendous opportunities for buyers of LNG. Those that are in the market will be able to achieve more favourable prices than has been the case for several years. Those which are long on gas, however, will need to evolve quickly and take actions to ensure such a position is an asset and not a liability.
Asian buyers have contracted for gas supply, principally as LNG, at an unprecedented level over the last few years. Stung by high spot prices, they sought to be masters of their own destinies by buying ample LNG and trading any excess. Doing so in the emerging buyers’ market may prove more challenging, however, and will require new capabilities and behaviours.
Ample gas supply, increased short-term trading, and highly mobile FOB LNG, including from the US, creates the possibility of a liberalised Asian market. The emergence of an Asian LNG price and hub is more likely now than ever before.