Ten years ago, when projects like LNG ÎÚÑ»´«Ã½ were still in early stage development, it was assumed that China would be a major, long-term market for ÎÚÑ»´«Ã½ natural gas exported as liquefied natural gas (LNG).
But a new report suggests Japan, Taiwan and South Korea are probably more reliable markets for Western Canadian LNG.
In a report produced for the First Nations Climate Initiative (FNCI), Japan, South Korea and Taiwan are identified good potential markets for ÎÚÑ»´«Ã½ LNG, as well as next generation fuels, like blue and green hydrogen and ammonia.
The fear, for LNG producers, is that net zero plans could result in a demand for LNG that first grows, then plateaus before the end of life of multi-billion LNG projects, raising the risk for investors of stranded assets.
“These climate-related uncertainties have elevated fears about over-investment in LNG, in contrast with past cycles where gaps between supply and demand tended to signal and unlock new investment,” writes Robert Johnston, executive director at the Center on Global Energy Policy at Columbia University, in a commissioned by the FNCI.
The FNCI’s members include the Haisla and Nisga’a First Nation, both of which have their own proposed LNG projects – Cedar and Ksi Lisims, respectively.
Johnston was asked to consider the outlook for Western Canadian LNG exports. His report starts out noting how uncertain long-term forecasts are for natural gas, given the adoption of climate action targets that aim to phase out all fossil fuels and recent geopolitical events, such as the war between Russia and Ukraine, which has radically upset natural gas and LNG trade.
“While the most recent outlook from the International Energy Agency (IEA) sees a peak for global gas demand by 2030, the same scenario shows that gas demand in Asia remains stronger than other regions,” Johnston’s report notes. “Moreover, other forecasts such as that of the Institute of Energy Economics Japan (IEEJ) see a much longer-term sustained growth outlook for LNG.
"Russian gas will be a wild card -- while prewar supply to Europe is unlikely to ever recover, more Russian LNG and pipeline gas will eventually find its way to Asia, most notably in the form of an expanded Power of Siberia pipeline to China and higher LNG volumes to price-sensitive markets in developing Asian economies."
When ÎÚÑ»´«Ã½’s LNG industry was in its early days, it was assumed China would likely be a major market for ÎÚÑ»´«Ã½ LNG exports.
While it still could provide a market for Canadian LNG, the focus appears to have shifted more towards Japan, Taiwan and South Korea.
“I think the Northeast Asian markets -- Japan, Korea, Taiwan -- are particularly well suited for ÎÚÑ»´«Ã½,” Johnston said this morning in a presentation. “They're not adding a lot of new LNG capacity, but they do have a lot of existing LNG capacity in place they can use to import gas from ÎÚÑ»´«Ã½.”
“China, of course, is growing a lot faster, has lot more LNG capacity under construction and they’re not perhaps as price sensitive some other buyers in Asia, and may take a more strategic view, especially on geopolitics, but are probably not as optimal as those Northeast Asian markets, especially given strong competition from coal and renewables.”
Southeast Asia – Philippines, Vietnam, Singapore, Thailand – might also provide a market, as new LNG import capacity is built out there.
Natural gas's function as a "bridge fuel" in decarbonization has mainly been in switching from coal power to natural gas, which can result in achieving significant CO2 reductions. But aggressive net zero targets puts pressure on countries to bypass gas altogether as an interim energy source and go straight to even lower carbon energy sources, like renewables.
Johnston noted that China, India and Indonesia are also now looking to "abated coal" (coal power with carbon capture and storage) and "lot more renewables," which may reduce the demand for natural gas there.
Johnston said decarbonization of industries like steel and iron smelting could provide a long-term market in places like Japan and South Korea, as natural gas and, later, hydrogen, replace coal in those industries.
"The Asian market should be viewed as a series of regional markets with significantly differing prospects for gas demand growth linked to variations in overall energy demand growth, levels of competition from coal, nuclear power, renewables, and batteries, and policy focus from governments," Johnston's report says.
"Within this context, Japan and Korea stand out as markets aligned with ÎÚÑ»´«Ã½ on climate and energy security policy, with high levels of existing gas infrastructure, and heavy investment in industrial decarbonization, blue ammonia and hydrogen, and carbon capture and storage that will provide longer-term partnership opportunities for Western Canadian gas exporters."
Johnston's report warns, however, that "absolute gas demand growth in Japan and Korea will be modest or even decline in the decade ahead, particularly compared to faster growth markets in China, India, and ASEAN (Association of Southeast Asian Nations) countries."
Johnston's report says that "ÎÚÑ»´«Ã½’s ability to win LNG market share in emerging Asian markets will likely be linked to government policy and G7-level support for coal phaseouts."
