Evolving Roles of LNG and Asian Economies in Global Natural Gas Markets

Executive Summary

This paper explores recent developments in the production and consumption of liquefied natural gas (LNG) and highlights the benefits and challenges Asian nations face in the global gas market.

MAIN ARGUMENT

The past decade has seen a significant expansion of LNG production capacity that has turned the once limited and expensive fuel into a less costly alternative energy source. Asia itself has seen production centers grow and sustained demand in traditional LNG consumption centers as well as emerging economies. The unprecedented opportunities of LNG liquefaction and gasification capacity as well as the prospect of discounted gas prices have also brought about numerous challenges. LNG project development has been spurred by consistent demand from traditional consumers in Japan as well as by the prospect for growth in India and China. While numerous projects are under way in the Asian gas market, difficulties with existing production, costs delays in construction, and regional pricing make LNG a complex venture in the Asia-Pacific.

POLICY IMPLICATIONS

• The globalization of the LNG market means that many nations may have several sources of LNG and will look outside regional markets for gas imports, particularly given a post-recession rebound in LNG demand.
• LNG production in Asian states continues to be hampered by challenges such as high capital costs, shortages of skilled labor, and long-term sales contract requirements.
• Promotion of more efficient uses of gas and LNG, including use of gas-fired combined heat and power plants and distributed power systems, may allow Asian states to fully capitalize on the advantages of the contemporary gas market.
• The inherent difficulty and cost of LNG projects require incentivized policies on taxes, royalties, project financing, and pricing reform by Asian governments to encourage stronger commitment from hesitant natural gas developers.

Hiroshi Hashimoto is a Senior Researcher, Gas Group of the Institute of Energy Economics, Japan–IEEJ. He previously worked for Tokyo Gas and the International Energy Agency (IEA) on natural gas.