LNG recovery in Asia depends on China, India policies: IEA

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The latest International Energy Agency (IEA) report on the global natural gas market has forecast that global natural gas demand will drop by 4 per cent, or 150 billion cubic metres (bcm) in 2020 as consumption takes a hit from the economic impact of the novel coronavirus.

The IEA forecasts a gradual recovery in demand in 2021 and 2022, but the impact of the coronavirus will be long lasting, increase uncertainties and dampen growth rates. The recovery in demand is likely to be led by liquefied natural gas (LNG) and will be led by Asian countries, the IEA said.

The chief concern is much of the rebound in demand is to come from China and India, but the optimistic demand scenarios are dependent on whether Asia’s two fastest growing major economies continue with gas-friendly policies, or whether they backslide and favour coal.

The IEA expects China to overtake Japan as the world’s biggest LNG buyer, with imports of 128 bcm a year by 2025, equivalent to about 174 million tonnes, or almost three times the 60.25 million tonnes imported in 2019.

The future of China’s coal-to-gas switching policies remains uncertain, after previous strict moves in favour of natural gas in order to reduce air pollution were relaxed last winter. China has also allowed the planning and construction of new coal-fired power plants to proceed, and even be accelerated, as part of plans to boost the economy after the coronavirus-induced slowdown.

For India, the IEA expects an increase in demand of 28 bcm a year during the 2019-25 period as the country moves to meet a policy goal of increasing the share of natural gas in the energy mix from 6 per cent to 15 per cent, as well as improvements in LNG and pipeline infrastructure.

India’s industrial sector is viewed as the prime driver of increased LNG demand, although the rollout of city gas networks and compressed natural gas fuel stations means the residential and transport sectors are also important. Another key issue for India is price, and the IEA report points to the current low spot price for LNG in Asia continuing for some time.

Overall, the prospects for LNG seem inextricably linked to whatever policies are implemented by Beijing and New Delhi, as well as keeping prices low enough to act as an incentive to demand growth, especially at the expense of coal.

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