Prolonging the United Statesโ pause on new liquefied natural gas (LNG) projects will deprive Asian countries of a price-competitive source, making it harder for emerging economies in the continent to phase out cheaper but more polluting coal, according to an analysis commissioned by Asia Natural Gas and Energy Association (ANGEA).
The study by Wood Mackenzie (WoodMac) assumed lower renewables penetration compared to that projected by the International Energy Agency (IEA). Project implementation challenges include unattractive taxation, land acquisition hurdles, a lack of regulatory frameworks and a lack of battery storage, according to a partial WoodMac report published by ANGEA.
โThere are also other country-specific challengesโ, WoodMac said in the report. โFor example, Bangladesh is densely populated and developing projects close to demand centers in Dhaka can be challenging. Also, some countries (e.g., Thailand, Indonesia) have limited onshore wind potential due to low wind speedsโ.
However, despite an expected โsubstantial growthโ of renewable energy, Asian LNG demand could grow from 270 million tons per annum (MMtpa) to 510 MMtpa between 2024 and 2050 driven by emerging economies in South and Southeast Asia, the report said.
The forecast for LNG consumption is based on โadequate LNG supply availability keeping prices affordableโ for the emerging economies, and this is where the U.S. comes in, it said.
โUS policy relating to the current pause on non-FTA approvals is partly guided by assumptions on higher renewables being built in Asia, based on IEA forecasts, but could prove detrimental and erode Asian gas demand by raising LNG pricesโ, the report stated.
The outgoing Biden administration announced January 26 pending decisions on LNG export to countries that have no free trade agreement (FTA) with the U.S. have been indefinitely shelved. The enforcing agency, the Energy Department, said the moratorium gives it time to review permitting considerations involving greenhouse gas emissions, environmental impact, energy prices and domestic gas supply.
โIn 2023, ~20 percent of the global LNG supply of 410 mmtpa came from US projects and in our base case, where we currently assume that the pause on non-FTA approvals for US LNG projects will be relaxed in 2025, we expect that 1/3rd of the global LNG supply in 2035 will come from US projectsโ, WoodMac wrote.
โIf new pre-FID LNG volumes from US were not going to be available anymore, buyers will lose the optionality to secure seemingly limitless LNG supply at competitive prices and would be left in the hands of limited other suppliersโ, the report said.
โThis would happen at a time when geopolitical tensions limit supply developments from other big resource holders, including Russia and East Africaโ.
A surge in LNG supply during 2026โ28 is projected to meet demand for the second half of the decade but new projects will be needed to ensure supply from 2030, the report said.
If pre-final investment decision (FID) LNG volumes from the U.S. were not to be realized, there would be an โupward pressure on pricesโ, it said. โThe break-even costs for many of the non-US projects, which will need to be developed in the absence of new pre-FID US LNG, are higher than the forecast delivered prices for Henry Hub indexed volumes from US into Asia. Thus, long-term contract prices in Asia will rise if the non-FTA pause is not liftedโ.
Emerging Asia, or South and Southeast Asia, โare extremely price sensitive and have typically switched to coal and oil when LNG prices rise and hence affordable prices are key to realizing this demand growthโ, the report added.
In 2035, assuming availability of new U.S. supply, emerging Asia could see 162 MMtpa of LNG demand. Without new U.S. supply, the demand would be 114 MMtpa, the report said.
โIf rising prices erode ~30 percent demand in emerging Asia in 2035, coal consumption could increase by 95 million tonsโ, resulting in incremental carbon dioxide emissions of about 100 million tons, it said.