Sustained high prices over the past year have eroded the economic case for LNG and hurt LNG sales in key Asian markets, warned a new report from the Institute for Energy Economics and Financial Analysis (IEEFA).
The global LNG industry had pinned its long-term hopes for growth on emerging markets in China, South Asia, and Southeast Asia.
“Less than one year into higher prices, LNG markets are already seeing a major realignment of demand away from Asia.
Should price spikes and volatility continue over the next several years, downward pressures on Asian LNG demand may accelerate, permanently impairing long-term regional demand growth,” said Sam Reynolds, the report’s author. “Financiers and investors in new LNG projects must take note.”
LNG sales in Asia through July, 2022 have fallen by more than 6% ,compared to last year. In China and India, two of the largest potential LNG growth markets, LNG imports have fallen 20% and 10% year-on-year, respectively.
Asian demand could fall further, as competition for limited supplies intensifies during the winter heating season. Multiple countries have withdrawn or been forced out of LNG spot markets altogether.
High, volatile LNG prices are unlikely to settle for several years, due to many factors. For example, the threat of continued Russian cuts to European piped gas, outages at LNG liquefaction facilities, and increasingly unpredictable weather events, due to climate change, could all constrict an already tight global market.
“Exorbitant prices and unreliability of supply are undermining industry-driven narratives that LNG is a viable ‘bridge fuel’ from coal,” Reynolds added.
“Continuous demand growth at persistently high prices will likely prove fiscally unsustainable for emerging markets.”
As a result, numerous forecasting agencies have begun cutting estimates for Asia’s medium-term LNG demand growth.
The International Energy Agency’s (IEA) latest outlook for Asian gas demand growth through 2025 is 65 bill cu m less than its forecast last year.
Bloomberg New Energy Finance has cut its expectation for South and Southeast Asian LNG in 2025 by 37 bill cu m.
Other mainstream forecasting agencies, such as Rystad Energy and the Independent Commodity Intelligence Services, have also warned of the risk of permanent reductions in emerging Asia’s LNG demand.
LNG unaffordability and fuel supply insecurity may cause new import terminals to become unused, potentially costing billions of dollars in stranded assets.
As long as unaffordable LNG prices and procurement challenges continue, $96.7 bill of proposed LNG-related infrastructure projects in Pakistan, Bangladesh, Vietnam, and the Philippines will face a heightened risk of under utilisation or cancellation.
Many analysts expect Asian demand growth to simply recover to pre-crisis levels once prices settle and new supplies come online.
But countries are rapidly developing alternative energy sources that could permanently dent regional LNG demand growth.
“These shifts away from LNG are in their early stages. Should high prices and volatility persist for the next several years, the narrative around LNG as a viable, affordable transition fuel is likely to erode further,” Reynolds continued.
“Ultimately, high prices now may undermine profits and exacerbate stranded asset risks for LNG projects targeting completion later this decade.”
