LNG

Growth in US LNG production is essential to balance global markets and provide emerging Asia with an alternative to coal, the region’s dominant fuel for power generation. Wood Mackenzie forecasts LNG demand from Asia will grow from 270 million tons per annum (mtpa) this year to 510 mtpa in 2050 – and without resources to be self-sufficient, the region must rely on imported LNG to cover its energy needs.

As the world’s biggest LNG exporter, the United States has been essential to balancing global markets and providing electric power generators across Asia with an affordable and available alternative to the high-emitting coal. However, unless there is an upsurge of LNG supply from new projects, rising coal-burn across emerging Asia will cause a substantial rise in related emissions, a study commissioned by the Asia Natural Gas & Energy Association (ANGEA) finds.

Two scenarios were modelled: one where the current halt to U.S. LNG export approvals to non-free trade agreement countries is lifted early in 2025 and another where this ‘pause’ stays in place longer-term.

“If the pause is lifted and approvals and development of export facilities resume, then U.S. LNG is expected to comprise a third of global supply by 2035,” said ANGEA chief executive Paul Everingham. “But if it remains in place and planned and proposed U.S. LNG projects are not developed, there is a risk that LNG developments in other regions will fail to keep pace with anticipated demand growth.”

Though considerable LNG supply will come to the market in the second half of this decade, uncertainty abounds about the 2030s and beyond. This supply risk is impacting energy planning in Asia.

Speaking to energy decision makers around Asia, who plan to invest tens of billions of dollars in gas supply and infrastructure worth, ANGEA found the most common question they ask us is ‘where is our gas supply for future decades going to come from?’

Bangladesh, Vietnam, the Philippines, Indonesia and Malaysia will not be able to realize their plans to transition to gas-fired power if LNG prices are high and coal use, which hit record levels in both 2022 and 2023, will keep growing. “They want to know if the U.S. will be a reliable long-term supplier of the LNG they seek to replace coal in power generation,” he explained.

“If it’s not from the U.S. or Australia, then this study shows gas would need to be sourced from less cost-competitive projects around the world and the likely outcome would be higher LNG prices than what many South Asian and Southeast Asian nations can afford.”

And their fallback position is – quite understandably – to stick with a fuel they are familiar with and which they know is likely to be inexpensive and plentiful: coal.

“If price increases were to result in 2035 LNG demand from the emerging Asian importing countries being 30% lower than Wood Mackenzie’s current projections, it’s estimated an additional 95 million tons of coal would be used in that year alone,” Everingham concluded.

Spot and forward LNG prices indicate the supply/demand balance will tighten in December and going into the first quarter of 2025. Following two exceptionally mild winters, markets are currently well supplied at relatively low prices, analysts said, hence a prolonged spell of cold temperatures could squeeze the balance substantially and cause price spikes.

Argentina’s Vaca Muerta basin has seen shale oil production rise 35% yoy in the third quarter to 400,000 barrels per day (bpd) due to productivity gains. To sustain growth, the $2.5 billion Vaca Muerta Sur pipeline is being developed to expand takeaway capacity from the field to global markets.

India is poised to snap up big parts of the substantial volume of uncontracted LNG from the Middle East. Buying interest is on the rise as the Indian government allows utilities to blend LNG with domestically produced gas in a bid to make it more affordable for power generation, compared with coal.

Watch out for uncontracted LNG cargoes, seems to be the motto of Indian commodity traders and large utilities. Looking ahead, Rystad’s Kaushal Ramesh, Vice President Gas & LNG Research, expects savvy buyers to secure large parts of the uncontracted LNG production from Qatar, Oman and potentially Iran – at favourable terms.

“The nation is well-positioned to attract aggressive targeting from Middle Eastern producers and offtakers,” he said, noting nearly 100 million tons per annum (mtpa) of Middle East LNG will remain uncontracted by 2035.”

Flexible, low-cost supply preferred

Some potential pitfalls should, however, be taken into consideration: A key issue is Indian buyers’ history of renegotiating or even abandoning near-complete deals, which creates uncertainty for suppliers.

In Ramesh’s view, “this preference for flexibility and cost-effectiveness over long-term commitments highlights India's focus on securing the best prices for its consumers in a volatile global market – but it could limit LNG growth prospects.”

Delays at infrastructure build-out hampers the development of India’s overall gas and power gen sector. Regasification terminals remain concentrated in the western part of the country, and efforts to expand the gas pipeline network to other regions have been inconsistent.

“Slow progress is due to regulatory hurdles, challenges in securing investments, difficult terrain, and competing priorities,” he criticised, “as India channels significant resources into renewable energy development alongside its gas infrastructure.”

Domestic production can’t meet demand

Come 2040, India’s total gas consumption is forecast to double to almost 114 billion cubic metres (bcm) and despite a 51 percent jump in domestic production to 36.7 bcm by 2025, this will not suffice to meet India’s growing energy hunger. The Asian powerhouse and most populous nation will hence heavily rely on imports to meet its future energy needs.

Long-term contracts, extending way into the 2030s and beyond, help shield India from global price fluctuations and ensure a steady stream of cargoes shipped to Indian shores. Through these LNG offtake accords, India does not only strengthen its energy security but also facilitates a swift exit from more emission-intensive fuels like crude oil, mazut and thermal coal.

Coal still king in India, at least for now

India’s heavy reliance on coal has become apparent during the summer 2024 heatwaves, which temporarily propelled up coal-burn to meet peak power demand. Natural gas, on the other hand, currently accounts for just 2 percent of the country’s power mix – and in fact, coal-generated power is not projected to start falling this side of 2040.

Though gas-burn is unlikely to drive LNG imports, analysts at Oslo-based Rystad Energy believe “the sector could still see growth, however, depending on future policies to promote coal-to-gas switching or introduce carbon pricing.”

Verso Energy has reserved a site for a new plant to produce hydrogen (H2) and biogenic synthetic fuels at the Port of Oulu, in northern Finland. Similar production sites exist in various parts of France, and Verso's synfuels production process combines green H2 with carbon dixoide (CO2) recovered from nearby paper and pulp mills.

Electricity in Finland is among the cheapest in Europe: In the first half of 2024, the price of electricity for non-household customers in Finland was the lowest in the European Union at just €0.0939  per kilowatt-hour (€/kWh), given that most of it is derived from hydropower plants.

Using this electricity to produce H2 and related biogenic synfuels is becoming a lucrative business, not least because offtaker are situated very close to northern Finland - just a short shipping distance away across the Baltic Sea in Germany, Poland and Denmark, as well as in the Netherlands and the UK.

Cheap electricity, large talent pool

Asked why Verso chose Oulo as a location for its latest hydrogen plant, CEO Antoine Huard said "the region around the Finish port town is attractive because it provides an abundance of affordable renewable energy and biogenic carbon dioxide.”

In addition, experienced chemical researchers at Oulo University alongside large R&D investments in the area, ensure a “sufficient talent pool,” the Verso CEO said, and this offers the French company potential customers and subcontractors.

And last but not least, the Port of Oulu, with its rail and road links, provides good connections to the rest of the world.

H2-derivative projects already set up

Several other hydrogen production and H2 derivative projects have already been initiated in the greater Oulu region: Gasgrid Finland is planning to establish a hydrogen transport infrastructure to connect Oulu’s hydrogen production with the rest of Finland and other countries in northern Europe.

Verso Energy is hence keen to get its project off the ground, though Mr Huard cautioned the latest “land reservation is only a preliminary decision,” – a final investment decision (FID) will be taken at a later stage.

Europe's latest episode of dark and almost wind-still weather – dubbed Dunkelflaute – has once again highlighted the importance of flexible gas generation. Low wind speeds since early November reduced wind power output by 40% yoy, or nearly 15 TWh compared to November 2024, IEA figures show and that shortfall was largely offset by flexible gas power plants ramping up output by 65% yoy, or 13 TWh.

Germany's state financing body KfW has agreed a $200 million loan with Indonesia on the grounds of adjustments to fuel and electricity tariffs, e.g. higher tariff-cost-coverage, feed-in tariffs and standards for demand-side response, board member Dr Norbert Kloppenburg said. In parallel, the Asian Development Bank (ADB) and the World Bank are granting loans of $500 million each in a first tranche, while the French counterpart AfD plans a contribution of $150 million.

Egypt’s state energy company EGAS has reduced its LNG imports to the Ain Sokhna regas terminal, chartered from Hoegh LNG, by more than a third to 500 million cubic feet per day (mmcf/d). Situated east of Cairo, the Hoegh Gallon FSRU is on an interim charter from the Norwegian shipping company Hoegh, and had been originally destined for Australia.

Global LNG markets have been pretty unphased by last week’s US election results: near-term demand fundamentals are net bearish as traders await the onset of more severe winter weather. Looking at Q1-2025, uncertainty abounds with regards to Egypt’s LNG demand due to insufficient domestic gas production and escalating tensions in the Middle East.

Nhon Trach 3 & 4, Vietnam’s first LNG-fuelled power stations with 1.6 GW capacity, will be grid-synchronized before the end of this week. Dong Nai's Department of Industry and Trade disclosed the 500 kV Nhon Trach 4/ Phu My/ Nha Be power line – one of four lines built to accommodate electricity from the two plants – is scheduled to start operating by November 15.