Newcomers to the Asian liquefied natural gas (LNG) market will face a tough time securing their energy needs as they compete for tight supplies with veteran buyers whose own demand shows no sign of abating, experts said.
Large LNG buyers such as Japan, South Korea, and increasingly China and India will see imports increase sharply, with Asia is expected to consume as much as two-thirds of global LNG supplies by 2015 by some estimates.
But Asian countries expected to start importing LNG in the next five years, such as Pakistan and Vietnam, are likely to face difficulties securing supplies, and pay dearly for them.
“The next round of newcomers— Philippines, Vietnam, and Pakistan— will struggle. The existing players— Thailand, China, India— they understand the market now and they can manage things,” said Tony Regan, an analyst with Tri-Zen International in Singapore.
“It’s going to be a tight market, it’s going to be tougher, you may not always get a spot cargo when you want it and you might have to pay fairly high prices,” Regan said.
The tightness in the Asian LNG market is largely due to Japan’s recent nuclear crisis, which has boosted the country’s LNG demand and sopped up spot supplies.
As a result, Asian spot LNG prices have soared in the wake of the Fukushima disaster from around $10 per million British thermal unit (mmBtu) to $18 per mmBtu, more than four times the price of U.S. gas prices.
“The softer prices that you may have seen in the spot market pre-Fukushima have disappeared, so the long-term fundamentals are starting to assert themselves,” said Graham Tyler, an analyst with Wood Mackenzie in Singapore.
“The pace of demand growth across the region may not be as quick as some people are planning for…. Singapore, Malaysia, Indonesia, Thailand, and Vietnam will all probably need LNG at some stage, it’s just a matter of when and how quickly.”
Catch 22
One challenge for countries that are looking to enter the LNG market as buyers is developing credibility, an undertaking which sometimes requires committing to a hefty investment in an LNG import terminal project before they are guaranteed supply.
Pakistan, which sorely needs energy to feed shortfalls in its power sector, has said it plans to secure LNG by early next year, but experts said without existing terminals it may have difficulty doing so.
The Philippines has said it plans to begin importing LNG in the next four to five years and is in talks with U.S., Canadian and Australian suppliers.
The archipelago has had several import terminals on the drawing board for years, but with no firm completion dates, analysts say talks with suppliers might see little progress.
Vietnam has set start-up dates for its terminals, but after shifting timelines and import terminal locations, buyers might not see the country as a serious, experts said.
“Do they confirm projects, which will enable them to import? Or do they only confirm the projects when they’ve also got confirmation of the supply? The supplies aren’t going to be firm unless they’ve got confirmation of the projects,” Regan said.
Looking to coal, bridge supplies
Higher gas prices and LNG scarcity will mean that some countries will be forced to choose between higher power prices and fuels that cause more pollution and release more greenhouse gases, such as coal.
“The economics tend to favour coal, but in some markets there is political and local social opposition to coal so if you’re not building coal, you’re pretty much saying we want to buy more LNG and therefore your energy prices are going to go up,” said Wood Mackenzie’s Tyler.
“That’s really the stark choice that you’ve got for a lot of countries in Southeast Asia.”
Higher prices will likely cause some markets to lean more toward coal than they had previously planned, Tyler added.
Other markets, especially those that already have some domestic production may look to LNG as a stop-gap for peak power demand or for industrial users willing to pay higher prices, some experts said.
“They could look for bridging supplies until the market softens, maybe short-term contracts, so as not to lock themselves into prices in anticipation that prices may change,” said Erwin Chan, an analysts with FACTS Global Energy in Singapore.
“It’s all how much risk you are willing to take.”
