The Asian Quest for LNG in a Globalizing Market
Foreword
Four years ago, the International Energy Agency (IEA) introduced the concept of the "Golden Age of Gas," and Asia stands out as a key region for natural gas growth. By 2035, the IEA expects Asia's demand to grow by as much as the current total production in the United States, driving over $200 billion in investment in liquefied natural gas (LNG) facilities.
Challenges to the Status Quo
Despite the abundance of gas reserves globally, achieving a "golden future" for gas in Asia requires significant changes. The IEA highlighted the need for a more transparent and efficient market, including gas trading hubs, to reduce the significant premium that Asians pay for LNG. This was confirmed by the extensive and enthusiastic response to these findings.
Medium-Term Perspectives for Global LNG Markets
The world has over 200 years' supply of gas, but the timing of extraction and use depends more on a favorable policy environment than geological factors. Energy policies that fail to encourage investment and keep gas prices below their true market value will lead to both supply shortages and rapid demand growth. This is a global issue, not just an Asian concern.
How Pricing Works Today
Gas is abundant and a key component in a medium-term energy mix that helps limit global temperature rise when replacing more carbon-intensive fuels. However, geopolitical tensions highlight the importance of gas supply security, and LNG is a credible diversification source. In Asia, however, rigid and illiquid markets exacerbate the challenge of making gas cost-competitive and easily accessible.
Cracks in the Initial Model
Geopolitical tensions and persistent tightness in the global gas trade have increased the challenge. Asia's gas consumption outside China actually declined in 2013, and the rush to lock in new coal capacities continued. New supply alone cannot resolve these issues; Asian countries should not rely solely on U.S. LNG to solve their energy dilemmas.
How LNG Projects Started to Deviate from the Traditional Model
North American LNG is a significant development in the regional gas market. However, new supply alone cannot compensate for inadequate policy preparation. Efficient and reliable markets can minimize costs and create incentives for exploration and development of new resources. Expectations of robust Asian demand growth with sustained premium pricing drive investments and innovation into new business models.
The Asian Quest for LNG
Efficient and transparent markets coupled with sustained investment are essential for building reliable, varied, and economical sources of energy. The experience of IEA member countries shows that there is only one direction forward for LNG, natural gas in general, and all fuels: efficient and transparent markets linked with sustained investment.
Conclusion
The "Golden Age of Gas" is about making the best possible use of abundant resources to boost development and minimize climate change in the medium term. This is a global issue, and Asia is adopting this lesson, paving the way for other regions to follow.
