A Sustainable Gas Market for Asia
Consumption and trade in natural gas in East and Northeast Asia has risen extremely fast over the last two decades. Several countries have already emerged as major participants in this Asian gas story; but the existing patterns of trade and production are by no means fixed and could be radically altered by economic, political and environmental events.
China, which has expanded natural gas use at an impressive rate since 2000, is set to be the driving force behind even faster expansion of gas demand. Its unprecedented growth of domestic gas production is likely to continue, along with rising pipeline and LNG imports. An expansion of consumption from 129 bcm/y in 2011 to more than 300 bcm/y in 2020 looks realistic. The Beijing planners’ own projection of 400 bcm/y in 2030 is also achievable, though it will require a contribution from coalbed methane and shale gas. If China is capable of copying the US shale gas revolution of recent decades, then a gas consumption figure of 500 bcm/y by 2030 would not be wishful thinking. The true picture of China’s shale gas resources will become clearer by 2020.
Meanwhile, Australia’s ambitions to become the major LNG supplier for Asia’s gas expansion are threatened by rising production costs, and also by the fact that North American shale gas based LNG is using its price competitiveness to target the lucrative Asian market. Competition may further intensify once the major offshore discoveries in Mozambique and Tanzania (with proven reserves of at least 70 and possibly 100 tcf) bring more gas onto the market. Both Mitsui and Kogas are very well placed to take advantage of this frontier LNG development; and Thai PTT Exploration & Production’s efforts to take over Cove Energy’s equity provide indirect confirmation of Asian buyers’ current interest in diversifying their LNG supply sources.
In any event, neither the short nor the long run destination of some of the region’s largest reserves has yet been decided. For now at least, the failure of the Sino-Russian gas price negotiations in 2011 opened the door to a major increase in pipeline gas from the Central Asian Republics to China (up to 100 bcm/y) and left observers guessing about Russia’s long run gas export policy. Its apparent strategy of penetrating the Asian gas market without sacrificing too much on the price seemed to have backfired, as did its decision to play the Korean card (pipeline gas supply to South Korea via North Korea). In any case, LNG export from Vladivostok rather than from the Sakhalin Islands is very unlikely to take place at a competitive price. It is safe to say that at least 40 bcm/y of East Siberian pipeline gas is still available for sale to China and Korea, but the 30 bcm/y northern Chinese market is being targeted by the small scale LNG supply proposal by China’s own CNOOC in the Bohai Bay areas. In the continued absence of major pipeline gas supply from Russia, the huge premium on LNG gas for the Northeast Asian market will be very difficult to eliminate. So the LNG suppliers are eagerly awaiting the results of further Sino-Russian gas price negotiations in 2012. Their outcome will fundamentally affect the direction of regional and global LNG trading for at least the rest of this decade.
Meanwhile, the existing price burden is a heavy one for gas consumers in Northeast Asia to bear and they are anxious to explore any option to reduce a premium which has been worsened by Japan’s nuclear power plant closures. But, as long as pipeline gas does not flow from East Siberia to China, the premium burden will remain, since there is simply no alternative supply.
About the author:
Dr. Keun-Wook Paik is a Senior Research Fellow of the Oxford Institute for Energy Studies (OIES), and an Associate Fellow of the Energy, Environment and Development Programme, Chatham House, London (formerly Royal Institute of International Affairs). Dr. Paik is author of Sino-Russian Oil and Gas Cooperation : The Reality and Implications (Oxford University Press, 2012), and of Gas and Oil in Northeast Asia : Policies, Projects and Prospects (Royal Institute of International Affairs, 1995). He has been appointed advisor to the Sino-Russian Oil and Gas Cooperation Committee of the China National Petroleum Corp (CNPC), and also advisor to the Chairman of the Government of Sakha Republic in the Russian Federation.
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