Asia's LNG market faces many uncertainties, but not continuing to invest in it would be unwise as it is necessary for economic growth, said speakers at the Association of Energy Negotiators' International Energy Summit in Bangkok, Thailand last week.
Many countries are increasingly focusing on batteries and renewables as part of their energy transition plans to move away from fossil fuels, but batteries are still far from being commercially attractive from a cost perspective, said Andrew Kirk, vice-president of origination, LNG at conglomerate B Grimm. Batteries may be able to provide a stable solution to the intermittency challenges posed by renewables in some regions, but wealthier countries are failing to acknowledge that developing countries cannot accept the higher costs involved, as well as the massively daunting task of building and installing the required capacity, he said.
"We have to separate the aspirational from the unachievable," said Kirk. There is already instability resulting from gas shortages even in more developed economies such as Australia, where the Australian Energy Market Operator has projected a shortage in southern states. The federal government has confirmed the need for a pro-upstream approach in its future gas strategy, and intends to bring on line new gas supplies and make them affordable during the transition.
"The timeline we have given ourselves is starting to look disorderly," said Kirk, with reference to net zero targets. Advancements and breakthroughs in battery technology will be made, but the timeframe for this cannot be defined. If policymakers do not consider reversing declining gas production, the next 10-15 years will create more geopolitical uncertainty, he said.
Billions of dollars have been spent on current energy systems, said Steve Morrell, senior vice-president of ExxonMobil PNG LNG, adding that it would make more sense to put more gas into the system considering the higher cost of moving to renewables, he added. "Just by replacing coal [with gas], we'll see a 60pc decrease in emissions without any need for breakthrough technologies." said Morrell.
If too much emphasis is placed on renewable energy, this will also lead to declining investment in finding new oil and gas resources, said the executive director of the Petroleum Institute of Thailand, Kurujit Nakornthap, which could lead to energy shortages and more volatile energy prices. "The stone age [ended] not because we ran out of stone, so the oil age is not going to [end] because we're running out of oil," said Nakornthap, paraphrasing a famous quote by ex-Saudi oil minister Sheikh Zaki Yamani.
Challenges faced by buyers, sellers
Gas projects are already at risk of not receiving funding because the current LNG market outlook is unclear, with short-term price volatility, rolling blackouts, power reduction, and uncertainty in supply affecting buyers and sellers, said Morrell.
The whole system is very tight at the moment, added Morrell, and alleviating this is dependent on customers, suppliers and governments as LNG is fundamental to global prosperity. But as a buyer, it is difficult to commit to multi-billion dollar long-term sales and purchase agreements (SPAs) when it is uncertain what the regulatory framework is going to be for the next 5-15 years.
The tightness in supply indicates a need for more LNG, which in turn implies there is a need for more projects requiring multi-million dollar investments and that are looking for 20-year offtakes.
Gas projects need 4-5 years of construction time and can produce for about 20 years. With an uncertain demand outlook and no buyers to take the product, investment decisions cannot be made and projects cannot get off the ground, said Morrell.
"Customers are searching for price signals and trying to plan ahead," said Morrell. But he questioned "if they can't plan six months ahead, how are they going to know 15-20 years ahead?"
The changing LNG model
Buyers also cannot commit to long-term projects if they cannot predict what the energy transition entails, if certain fuels or greenhouse gas (GHG) intensity reductions get mandated, and how that will change the LNG business model.
"The [LNG] market is always changing," said Morrell, with the introduction of carbon pricing to encourage GHG reductions creating further uncertainty for buyers and sellers.
There are three areas within the current LNG model that will evolve, said Kirk. There are going to be many new buyers in emerging markets as they turn to LNG as a transition fuel. Secondly, the affordability of low-emission LNG may be an issue because some markets are unable to afford the extra costs when they are struggling to even move from a coal to gas-based market. Thirdly, SPAs will evolve and contracts must change to become more flexible. So buyers and sellers need to "act in good faith", said Kirk.
But governments and regulators can slow down developments, which can be frustrating for suppliers, said Morrell. There needs to be a realisation that the consumer is paying for incentives and subsidies that the government provides, he said, adding that discussions should move away from 3–5-year political cycles and look at 20 years in the future.
