LNG 'inequality' bites as Europe takes supply from Asia
South and Southeast Asia returning to coal amid blackout risks from gas shortage
KUALA LUMPUR -- Surging European demand for liquefied natural gas to offset the loss of piped Russian gas has pushed prices for the commodity beyond the reach of many buyers in lower income regions such as South and Southeast Asia, driving some of them back toward a heavy dependence on coal, industry players say.
"Obviously Europe needs to grab as much gas as they could because they lost all that pipeline gas [from Russia]," Russell Hardy, CEO of Vitol, the world's largest independent energy trader, told the Energy Asia 2023 conference in Kuala Lumpur.
"Europe's thirst for LNG has taken some permanent supply from Asia, plus all the new supply from the U.S. and absorbed it all," Hardy said on Monday, the event's opening day. "Asia in 2023 will still be accessing [LNG] ... but the price will be much higher."
Asian LNG spot prices have dropped from their record high of $70 per million British thermal units (Btu) last August. Benchmark Japan/Korea Marker (JKM) prices averaged $18 per million Btu between January and March, according to the International Energy Agency, and have fallen further in recent weeks. But the prices remain historically high, and could go up again if winter in Europe turns out to be harsher than the mild previous one.
Hardy said the high prices are suppressing Asia's LNG consumption, which is projected to increase from 252 million tonnes in 2022 to 260 million tonnes this year -- still lower than 272 million tonnes in 2021.
"Asia is accessing today less gas than it could access in 2021," he said. "That's one sort of indication of inequality."
Europe averted an energy crisis last winter with new LNG supplies from the U.S. and Qatar, which have emerged as the world's two largest gas providers as Russia has dramatically reduced its pipeline gas supply for Europe after its invasion of Ukraine.
Speakers at the conference, however, stressed that an LNG crisis has hit some lower income markets instead.
"The message from European policymakers is, 'We handled this situation well, we avoided blackouts'," said Michael Stoppard, global gas strategy lead at S&P Global. "But actually there were blackouts. The blackouts were in certain markets in Asia, particularly in South Asia, where the LNG was diverted away to the higher paying European markets."
Patrick Pouyanne, chairman and CEO of French oil major TotalEnergies, said Asia overall has been fundamental for global LNG market growth. Seen as a fuel for energy transition, prior to the recent market disruptions LNG consumption had been rising in the region as it attempts to reduce its heavy reliance on coal.
"And then [Europe] took some LNG from Bangladesh, Vietnam, Thailand and prices [went] up," Pouyanne said. "We pushed these countries to need more coal."
"I hope Europe will be good again, warmer" in the coming winter, he added, "because otherwise there's no other way than to take more" energy from Asia.
Octavio Simoes, president and CEO of U.S. natural gas producer Tellurian, said that Pakistan, Sri Lanka, Indonesia and even Japan and South Korea burned a lot more coal than they did before due to being deprived of affordable LNG supplies.
"And some countries like Pakistan [are] completely abandoning their long term strategy of natural gas and deciding to develop their reserves of coal," Simoes said on Tuesday.
Tengku Muhammad Taufik, president and group CEO of Malaysian state oil company Petronas, on Monday raised concerns over long-term sustainability of natural gas supply in the region with the current "underinvestment" situation in the oil and gas sector.
He said some financial institutions were worried that money put into oil and gas projects would be stranded capital. In the meantime, as other industry players said, renewable energy developments and decarbonization efforts among energy companies in Asia have not progressed as fast as expected.