asia pacific lng ASIA PACIFIC LNG MARKET recent developments and emerging issues Allison Ball • There are several recent developments and Asia Pacifi c LNG trade in 2004 emerging issues in liquefi ed natural gas (LNG) markets that are likely to shape Asia Pacifi c Strong growth in imports LNG trade in the coming years. Prospects In 2004, LNG imports in the Asia Pacifi c grew for ongoing strong growth in LNG imports in by 6.0 per cent to an estimated 88 million tonnes, many existing and new markets have fi rmed, up from 83 million tonnes in 2003. Globally, as have prospects for some regional LNG ex- LNG trade in 2004 rose by 5.4 per cent, from port projects. 123 million tonnes to 132 million tonnes. • While there is ample regional LNG export In the Republic of Korea, LNG imports potential in the longer term, few projects dedi- increased by 15 per cent to 22.1 million tonnes cated to Asia Pacifi c LNG trade are due on in 2004, refl ecting continued gas market growth line before the end of the decade. As a result, and problems at some nuclear power plants. the LNG market in the Asia Pacifi c appears in- In Chinese Taipei, the startup of new gas fi red creasingly tight in the short term, especially to power plants drove a 26 per cent increase in LNG meet seasonal demand peaks. Construction of imports to 6.8 million tonnes. However, LNG LNG export projects continues to be delayed imports in Japan fell by 2 per cent in 2004 to 56.8 until some long term sales contracts are con- million tonnes, as more of the country’s nuclear fi rmed. • The scale of the expected LNG trade expan- LNG imports, Asia Pacific sion requires large volumes of capital and labor with particular skills, raising further A concerns about the timing and cost of export projects, including those in Australia. Other 50 key issues shaping the market include current 2002 40 high LNG prices linked to oil prices, buyer 2003 2004 demands for more fl exible contracts, and the 30 continuing globalisation of the market. 20 The objective in this article is to review recent developments and emerging issues in LNG 10 markets and to analyse their implications for LNG trade in the Asia Pacifi c region. The article Mt provides a brief update of ABARE’s major study Japan Korea Chinese India on the Asia Pacifi c LNG market, released in Taipei November 2004 (Ball et al. 2004). • Allison Ball • +61 2 6272 2065 • [email protected] australiancommodities • vol. 12 no. 2 • june quarter 2005 351 asia pacific lng power plants came back on line. India began LNG imports, Asia Pacific importing LNG in early 2004, with an estimated B volume of 2.0 million tonnes (fi gure A). Other 125 Export capacity also increased California/Baja China Regional LNG export capacity also increased 100 India in 2004, with the completion of RasGas Train Chinese Taipei 3 in Qatar (4.7 million tonnes) and North West 75 Korea Shelf Train 4 in Australia (4.2 million tonnes), Japan and debottlenecking at Qatargas in Qatar (0.6 50 million tonnes). Capacity in the eight countries 25 regularly supplying LNG to the Asia Pacifi c was more than 104 million tonnes in early 2005 (table Mt 1), an increase of 9 per cent relative to capacity 2004 2010 2015 at the beginning of 2004. LNG export capacity, early 2005 underpinned by strong economic growth and 1 increases in gas fi red power generation. Based on results from ABARE’s global trade and envi- Project Capacity Trains ronment model (GTEM), it is projected that Mtpa no. LNG imports in the Asia Pacifi c will increase at Asia Pacifi c an average annual rate of more than 5 per cent, Alaska, US Kenai 1.4 2 Australia North West Shelf 11.7 4 from 88 million tonnes in 2004 to 124 million Brunei Lumut 7.2 5 tonnes in 2010 and 156 million tonnes in 2015 Indonesia Arun 6.8 4 (fi gure B). More detailed information on the Bontang 22.6 8 drivers of regional gas demand and the modeling Malaysia MLNG Satu 7.6 3 framework can be found in Ball et al. (2004). MLNG Dua 7.8 3 MLNG Tiga 6.8 2 The Asia Pacifi c currently accounts for around two thirds of world LNG trade. However, Middle East Oman Oman LNG 6.6 2 expected strong growth in Atlantic LNG markets, Qatar Qatargas 8.9 3 particularly the emergence of east coast north RasGas 11.3 3 America as a major LNG importer, could result UAE Das Island 5.7 3 Total 104.4 42 C Cedigaz world LNG trade outlook Despite this increase in capacity, regional LNG supply remained tight in 2004 and early Europe Latin America 2005. There has been a greater reliance on distant 300 exporters from outside the region to meet Asia North America Pacifi c LNG demand, including sourcing of spot Asia cargoes from Algeria, Nigeria and Trinidad. 200 Outlook for regional LNG trade 100 Imports to grow strongly Mt LNG imports in the Asia Pacifi c region are pro- 2003 2010 2010 2020 2020 jected to nearly double in the next ten years, low high low high 352 australiancommodities • vol. 12 no. 2 • june quarter 2005 asia pacific lng in the share of the Asia Pacifi c market falling are projected to reach 11 million tonnes in 2010 to around half of world trade by the end of the and 12 million tonnes in 2015. decade. Cedigaz has forecast that world LNG India also has strong potential for growth trade will increase to 200–235 million tonnes by in gas use, with gas import plans progressing 2010, and to 320–380 million tonnes by 2020 signifi cantly in the past year, although there is (Logan 2005; fi gure C). still considerable uncertainty about projections. The outlook for LNG imports will be affected Growth in existing markets by the pace of development of LNG terminals, The four existing markets –– Japan, Korea, gas pipelines and gas fi red power plants, which Chinese Taipei and India — will continue to is likely to be slower than current plans indicate, account for the majority of LNG imports in as well as resolving issues with LNG pricing. the Asia Pacifi c in the coming decade. Despite Indian LNG imports are projected to be 8 million slow growth, Japan is expected to remain the tonnes in 2010 and 11 million tonnes in 2015. largest LNG market in the region, with imports projected to reach 62 million tonnes in 2010 and New regional markets for LNG 64 million tonnes in 2015 (table 2). China is expected to be a key market for LNG in the coming decade, with considerable advances in LNG plans in the past year. LNG imports into Projected LNG imports, Asia Pacifi c the Guangdong terminal are likely to commence 2 in mid-2006, while the Fujian terminal is now 2004 2010 2015 due on line in 2008. Import capacity in China Mt Mt Mt is expected to expand further, with the annual capacity of the Guangdong terminal proposed Japan 56.8 61.8 64.1 Korea, Rep. of 22.1 26.0 32.0 to rise to 10 million tonnes by 2010. Four Chinese Taipei 6.9 11.1 12.1 new terminals have also received government India 2.0 8.1 11.2 approval –– in Zhejiang, Shanghai, Shandong China – 7.7 18.3 and Jiangsu –– while many others are proposed. California/Baja – 7.5 14.0 Approved and proposed LNG import capacity in Other – 2.2 3.9 China is currently well above 50 million tonnes. Total 87.8 124.4 156.6 However, not all projects are expected to proceed in the timeframes proposed. China’s LNG imports are projected to reach 8 million Korea is expected to remain the second tonnes in 2010 and 18 million tonnes in 2015. The largest LNG market in the region, with imports success of the Guangdong project could boost reaching 26 million tonnes in 2010 and 32 prospects for growth in LNG imports; however, million tonnes in 2015. Korea’s government the timing of developments in China may also recently announced that the country will increase depend on expansion in regional supply. its reliance on LNG fi red power generation this LNG imports to the north American west decade, while reducing the emphasis on nuclear coast are likely to commence this decade. The power compared with previous energy plans most progress to date has been in Mexico –– the (MOCIE 2004). Energia Costa Azul terminal in Baja California The recent growth in LNG imports in Chinese has started construction, with a planned annual Taipei is expected to continue, driven by further capacity of 7.5 million tonnes, and the GNL expansion in gas fi red power generation this Mar Adentro de Baja California terminal has decade. This includes the possibility that Tai- received federal permits but is awaiting local power’s large Tatan power plant will come on permits (box 1). Progress on the three proposed line in 2006, two years earlier than scheduled Californian terminals has been slower, and there (Platts 2005a). LNG imports in Chinese Taipei is still strong public opposition to terminal siting in both California and Baja California. If two australiancommodities • vol. 12 no. 2 • june quarter 2005 353 asia pacific lng terminals on the north American west coast per cent of LNG imports are expected to be met proceed in the next few years, LNG imports by existing contractual supplies, leaving around could be up to 14 million tonnes by 2015, with 15 million tonnes of LNG for which new supplies imports limited more by terminal capacity than will need to be procured.