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LNG takes on coal in ASEAN’s energy mix
In a region that has become addicted to coal as a cheap answer to energy shortages, liquefied natural gas (LNG) offers Southeast Asia a welcome alternative that is cost effective and emits half the carbon of the “black pearl”
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span>In a region that has become addicted to coal as a cheap answer to energy shortages, liquefied natural gas (LNG) offers Southeast Asia a welcome alternative that is cost effective and emits half the carbon of the “black pearl”.
Demand for energy will grow 70 percent in the ASEAN region between 2017 and 2030, with coal power generation to rise 80 percent in response, the fastest rate for a region in the world, according to the International Energy Agency.
LNG, however, is taking coal head-on in the region that is expected to become a major gas consumer over the next decade. LNG has become increasingly attractive with prices falling to a three year low of US$4 per million British thermal units in April. Behind falling prices is a glut in supply.
Global demand for LNG in the last 12 months rose 8.5 percent to 380 million tons, with further demand expected to add 167 million tons by 2030, according to the Nikkei Asian Review.
Asia is forecast to drive 86 percent of that growth, with the ASEAN region expected to account for 44 million tons, behind India at 61 million tons and China at 53 million tons.
Thailand became the first ASEAN member state to import LNG in 2011 and in 2017 imported 3.95 million tons, 30 percent more than the previous year. State-owned enterprise PTT has set aside $4 billion for developing pipelines and LNG terminals, designating a major investment to diversify away from coal.
Vietnam, where energy demand has been growing 10 percent a year, will exhaust its most productive gas fields by 2020. SOEs PetroVietnam and Petrolimex will open the country’s first LNG import terminals in the southern provinces of Thi Vai and Khan Hoa respectively.
PetroVietnam is expecting to begin operations in 2023, with its port to handle 1 million tons of LNG annually.
The Philippines, meanwhile, will invest $700 million to build its first LNG import terminal, with reserves at the Malampaya gas field that supplies 22 percent of the country’s energy needs to be depleted by 2024.
Indonesia has traditionally been an LNG exporter, however by 2020 it will become an LNG importer as long-term contracted export obligations and rising consumption means domestic supply will fall short of the country’s energy needs. What’s more, the government has launched a nationwide gas network (Jargas) program to develop LNG import terminals and connect 5 million homes to gas by 2025.
Outside the region, LNG producers are targeting ASEAN member states as they lose ground in traditional markets. United States expansion of shale gas production has transformed the country from importer to major exporter.
But US exporters have seen an 80 percent fall in China-bound LNG shipments because of the trade war in which China put a 10 percent tariff on US LNG. The ASEAN region is thus seen as an alternative destination and growth market.
Qatar, the world’s leading LNG exporter, will expand on its plan to increase annual LNG production to 110 million tons by 2024 due to growing Asian demand. Energy Minister Saad Sherida al-Kaabi said the country will target Indonesia and the Philippines, citing them as untapped markets.
Increasing demand and supply thus means LNG is poised to expand its share of ASEAN’s energy mix, but will this be at the expense of coal?
The key obstacle to unfettered growth is that LNG is largely imported into the region, whereas coal can be more-easily sourced domestically. Coal accounts for 40 and 50 percent of the energy mix in Vietnam and the Philippines respectively and it will likely take precedence over imported LNG, as questions have been raised on how the two countries will pay for LNG imports.
Moreover, currency depreciation in Indonesia in 2018 led the government to raise the domestic market obligation for coal production by 5.79 percent to 128 million tons to reduce its dependence on imports and protect foreign exchange reserves. Indeed the archipelagic country is expected to have the third-largest installed coal-fired power plant capacity by 2030, with Vietnam in fourth.
What could aid LNG in taking a more substantial market share away from coal is less trade sensitivities but domestic and international environmental pressures. The ASEAN region has continued to build coal-fired power plants, but localized protests taking aim at pollution in southern Thailand and Indramayu, West Java, have forced governments to scrap projects.
On the international front, pressure from largely Western activist investors has led banks and financial institutions to reduce their exposure to coal projects.
More than 1,000 investors representing $8 trillion in assets have pledged to divest from companies involved with fossil fuels. Remarkably, Anglo-Australian miner Rio Tinto exited the coal business last August.
Activists have now started to target Asian investors, particularly in Japan, who have been criticized for financing coal projects in ASEAN countries. The strategy has paid some dividends, with Mitsubishi UFJ Financial Group and Dai-ichi Life Holdings among a number of financiers saying they will review coal projects.
Challenges remain among investors from other Asian countries, however. Chinese investors, for example, face little exposure to Western divestment campaigns because of strict limits on stockholdings by foreigners. Indeed the country is financing a number of coal projects through its Belt and Road Initiative.
Whether investor activism will truly choke off coal usage is yet to be seen and coal will certainly remain a vital part of ASEAN’s energy mix in the decades to come.
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The writer is a fellow at the ASEAN Studies Center, Gadjah Mada University (UGM), Yogyakarta.
