The global energy market dynamics will see Asia rising as the primary driver of the global demand growth in energy into the foreseeable future, with liquified natural gas (LNG) playing a pivotal role in meeting that energy need.
As a producer and nett exporter of LNG, and with sunk investments in the infrastructure and facilities, coupled with a strategic location straddling the West, the South and the North-East Asia premium market, strong and established links with the major players in the markets, and ongoing plans for more investments in infrastructure and facilities, Malaysia is well positioned to take advantage of this emerging trend.
Growing Asia will be a major Energy Market opportunity for the future, but the challenges are enormous
In 2014, as the managing director of Gazprom Marketing & Trading in Singapore, I was quoted to have said in an exclusive interview with Itar-Tass on May 28 2014, that Asian countries will increase natural gas consumption from 684 billion cubic metres in 2012 to 1.15 trillion cubic metres in 2030, and in the following years, the world gas demand will be increasing at an annual rate of two percent, which considerably outstrips consumption of other types of fossil fuel.
At that time, I was explaining the trend relating to the different countries’ economic dynamics, the trend of increase use of gas as a fuel, and the opening of new markets in Asia.
In boosting gas consumption to 1.15 trillion cubic metres by 2030, Asian countries will increase its share in the total gas consumption from the current 19 percent to 25 percent of world gas demand.
From a gas consumption of 3.6 trillion cubic metres in 2012, demand is expected to grow to 4.6 trillion cubic metres by 2030. Irrespective of the actual numbers now, I believe the fundamental trends will remain intact.
Asian demand can be looked at from three angles, namely China, India and Emerging Asia, which together accounts for over half of the net increase into the foreseeable future (e.g., near term from now till 2025-2030).
In terms of LNG, Asia is expected to drive nearly 75 percent of global demand for LNG by 2040 as domestic gas production declines and imported LNG substitutes higher emission energy sources, tackling air quality concerns and meeting emissions targets.
Post pandemic outbreak in 2020, China and India led the recovery in demand for LNG. China increased its LNG imports by 7 million tonnes to 67 million tonnes, charting an 11 percent increase for the year. India also increased imports by 11 percent in 2020 as it took advantage of lower-priced LNG to supplement its domestic gas production.
Additionally, China’s announcement of a target to be carbon neutral by 2060 is expected to continue driving up its LNG demand through the key role gas can play in decarbonising “difficult” and hard-to-abate sectors, like buildings, heavy industries, shipping, and heavy-duty road transportation, and so on.
Despite the growing demand for energy, a supply-demand gap is expected to open up in the middle of the current decade with less new production coming onstream than previously projected. For example, in 2020, only 3 million tonnes in new LNG production capacity was announced, down from an expected 60 million tonnes. Over half of future LNG demand will come from countries with net-zero emissions targets.
Two other major Asian LNG-importing countries, namely Japan and South Korea, have announced net-zero emissions targets in 2020. The implication of such a decision is enormous. For example, in order to meet its net-zero target, South Korea plans to switch 24 coal-fired power plants to cleaner-burning LNG by 2034. Other countries with coal or lignite fired power stations would likely follow suit.
Transitioning to a totally renewables future is the aspiration of many, driven by concerns on climate change and global warming issues. However, there is a disconnect between the vision and reality
Much as we want it, the transition to a totally renewables world cannot happen overnight. The right government policies, and the total ecosystem, with all the associated investments in infrastructure, technology, knowledge, and expertise, needs to be developed, and the whole value chain from energy producer to end consumer needs to undergo a transformation.
This is a massive exercise in itself. The transition process of switching from fossil fuel to total renewables needs to be managed well if we are to avoid disruptions and confusion in the marketplace, and across many industries.
At the moment, the energy demands are being met by a combination of energy sources, some of which are renewables like solar, wind, hydroelectricity, atomic energy and so on. But by and large, coal and fossil fuels still provide a big share of the energy needs.
To close the gap between vision and reality, we need to look at the role of “transitioning or bridging fuels” in the ongoing process of decarbonisation of industry. One of the key fuels is natural gas, which is the cleanest of all the fossil fuels.
Natural gas emits between 45 percent and 55 percent fewer greenhouse gas emissions and less than one-tenth of the air pollutants than coal when used to generate power.
Natural gas and LNG can be the bridging fuel to phase out the coal and lignite fired power generation capacity. In parallel, renewables power generation can also be expanded. LNG is also a viable option for transportation, especially for ships and marine vessels. Methanol is another fuel that ship owners are looking at.
The practical aspects of the transitioning process not well understood or properly thought through resulting in a “chicken and egg” dilemma on how to proceed
The major users or consumers of energy are industries. The cost to switch from their current mode can be considerable. The issue of security of energy supply will be another key consideration. The dilemma for them is the timing to switch to a new source of energy and ensuring the risk of doing so is mitigated.
This “chicken and egg” issue was faced for a number of years with the adoption of LNG as marine fuel. However, this is now being overcome by a growing number of companies opting for natural gas as bridging fuel to help meet industry decarbonisation targets. Many shipping lines have now taken the plunge to order their next batch of new-built vessels which will be LNG fuelled.
To enable natural gas and LNG, the cleanest burning of the fossil fuels, to act as the bridging fuels to the future, we need to create additional market space for gas-fired power plants to phase out coal and lignite fired power generation.
This can be done through a combination of supportive government policies and investments in new infrastructure or rejuvenation of ageing infrastructure. All these requires concerted efforts and massive coordination.
The sheer scale and cost of decarbonising the global energy system remains enormous, and time to do it is running out, if the deadline is 2050. To-date, most of the energy sector’s transition efforts have focused on hardware: new low-carbon infrastructure that will replace legacy carbon-intensive systems.
Relatively little effort and investment have been focused on another critical tool for the transition: next-generation digital technologies, in particular artificial intelligence (AI). These powerful technologies can be adopted more quickly at larger scales than new hardware solutions and can become an essential enabler for the energy transition. Again, another possible growth area for those in this field.
Differing levels of Infrastructure in different countries will produce differing outcomes
In terms of energy related infrastructure, Asia can be divided into three regions, namely NE Asia covering China, Korea, Japan and Taiwan, SE Asia covering the Asean 10 countries and, finally South Asia, covering Bangladesh, India, Pakistan, and Sri Lanka.
NE Asia has the most developed infrastructure in terms of number of LNG terminals and pipeline networks, lengths, and connectivity. China is also connected to Central Asia and Russia through transboundary pipelines and have good national pipeline networks.
Next in line in terms of maturity of networks and infrastructure are the Asean countries, followed by South Asia which is fast coming onto the game and building its infrastructure.
For the Asean countries, talks of the Trans-Asean Gas Pipeline (TAGP) have been going on for quite a while but its materialisation is still in inertia. Malaysia, Thailand and Singapore are already connected via gas pipelines system. There are offshore gas pipelines linking Myanmar with Thailand, and Malaysia with Vietnam, all of which could form the components of a future TAGP.
In other words, the components or footprint for the TAGP are already there and it just needs additional incentives to complete the interconnections. A worthwhile vision to contemplate is the connectivity of the various regional networks into one huge, integrated network.
Role of pipelines and LNG Regas Terminals — a case of potential conflict and complementarity
The potential for complementarity between pipeline systems and LNG regasification terminals is higher than the case for a conflict or competition between the two. This is because in reality, infrastructure investments are always done on a national level, the decisions and rationale being driven by the energy needs of a particular nation.
These networks evolve over time in tandem with the needs of the country. There is a potential to link all the pieces and nodes together between countries in one huge network of transnational connectivity.
In conclusion, there are real opportunities in the growing Asian energy market, including potentials for further integration of infrastructure, pipelines and power grids. The vision to transition to a totally renewables future is fully appreciated but the challenges to get there are enormous and complex.
The creation of the right environment and ecosystem to facilitate the transition is imperative and requires governmental policy support and incentives. Global warming and climate change is real and is the primary impetus to transition towards a total renewables future. However, the time to act is fast closing.
The transition towards a better and clean energy world has to be real, driven by the existential challenge of our times, namely climate change and global warming but at the same time, the transition process itself has to be realistic.
Looking ahead this juncture, the future is bright for LNG in Asia, driven by the need to transition into a world of full renewable energy. How long this rise will last for Asia will depend on how fast the intermittent clean energy sources (solar, wind, etc) and associated systems will take to mature to such a stage to finally replace LNG or natural gas as the last of the fossil fuels, if at all.
Lastly, the future will also depend on how fast and proactive the players in governments and industry will act.
Note: This article is an extract of the key points I highlighted as a panellist on the invitation of Gazprom to speak at the IBC (International Business Council) International Conference on “Challenges and Opportunities of Growing Energy Markets in Asia” held on Sept 17, 2021, hosted by Gazprom from two locations, namely St Petersburg in Russia and Singapore.