Asia urged not to build more LNG terminals

MANILA, Philippines — Asian countries going into liquefied natural gas (LNG) importation, including the Philippines, may face challenges in securing imported LNG and lead to stranded import infrastructure and gas-fired power plants due to the long-term impact of the Ukraine-Russia war on prices, according to the Institute for Energy Economics and Financial Analysis (IEEFA).

Countries should instead focus on renewable energy to foster energy self-sufficiency and make LNG importation a fuel of last resort, it said.

In a report, the IEEFA said the Ukraine-Russia conflict is likely to have longer-term impacts on already volatile energy markets, which may prevent emerging markets in Asia from securing imported LNG supplies.

“There are numerous reasons that fossil fuel price volatility in the wake of the Russian invasion of Ukraine may not be a short-term phenomenon,” energy finance analyst and author Sam Reynolds said.

“Lasting volatility in LNG prices could mean that price-sensitive buyers in Asia are effectively locked out of the market for several years, unable to compete on price. Ultimately, LNG import assets – terminals, pipelines, and power plants – face a high risk of being underutilized and stranded due to a lack of affordable fuel,” he said.

The report cited multiple factors clouding the outlook for LNG prices over the next several years. This means volatility may continue to threaten price-sensitive buyers’ energy security and energy affordability.

One factor is Europe’s commitment to wean itself off Russian piped gas by procuring more LNG, suggesting the region will move from being a balancing buyer to a direct competitor with Asian customers.

It also said no new significant LNG supply is expected until the middle of the decade, which means Europe would have to pull supplies from other regions, most likely from buyers unable to compete on price.

The IEEFA also said unplanned outages at existing LNG export facilities have increased every year since 2017.

On a more recent event, the report said any cuts to the Russian supply of gas to Europe could push the market further into LNG markets, leading to a tighter demand-supply balance and boosting prices further.

Despite the clear economic and financial risk, the IEEFA said many countries throughout Asia are doubling down on LNG import infrastructure projects.

It said several countries, including Thailand, the Philippines, and Bangladesh, have increased the targeted share of natural gas in their energy mixes despite declining domestic production.

Prices of domestically produced gas in the region have typically ranged from $1- to $5 per million British thermal units (MMBtu) – a far cry from the current LNG prices in Asia of $35 to $40 per MMBtu.

The report cited data from Global Energy Monitor, which said Asia’s ongoing gas infrastructure investments – which include power plants, pipelines and LNG import terminals – amounts to $379 billion.

Meanwhile, the region is expected to complete nearly 80 million tons per annum (mtpa) of LNG import capacity until 2023.

In the Philippines, there are three LNG terminals to start operating within the year – the Pagbilao LNG terminal of Energy World Corp., the Philippines LNG terminal of Atlantic Gulf & Pacific (AG&P), and the Batangas LNG of First Gen Corp. and Tokyo Gas.  Each terminal has a capacity of three mtpa.

These projects, once completed, will make the Philippines a new entrant to the LNG market.

Under the latest Philippine Energy Plan, gas-fired power capacity is forecasted to reach 24 gigawatts (GW), accounting for 40 percent of the total generation mix by 2040.

The forecast increased from 18 GW of gas-fired power plants or equivalent to 19 percent of the total power generation.

For price-sensitive LNG buyers, Reynolds said now is not the time to build new LNG import facilities in Asia.

“Instead, countries can consider urgently revamping national energy priorities with an eye toward cheaper, more financially sustainable technologies that bolster energy sovereignty and self-sufficiency. Rather than doubling down on a bad hand, the goal should be to maximize renewable energy while minimizing the need for imported fossil fuels as a last resort,” Reynolds said.