South Asian countries — India, Bangladesh and Pakistan – are forecast to drive a large part of the increase in natural gas demand in Asia. Price sensitivity is higher in emerging Asian markets, and they need more investment in industrial and power sectors to get full benefit of the cheaper and cleaner source of energy. As for India, it is characterized by regulated prices for both domestic production and for consumption.

In recent years, India has taken steps to improve pricing for production, with the introduction in late 2014 of a basket of external market price references to replace the previous administered pricing system. A price ceiling mechanism was put in place in 2016 to incentive investment in new specific offshore developments. The Petroleum and Natural Gas Regulatory Board that oversees natural gas related policies issued in April 2018 a tender to hire advisory services to launch as natural gas trading hub, where natural gas can be traded, and supplied through a market-based mechanism, instead of multiple formula-driven system. The expected launch of this natural gas hub has been set for October 2018.

Gas demand in Asia is expected to rise by over 5 per cent per year, encouraged by economic growth and fuel substitution policies. This rapidly growing consumption in the Asian region covers natural gas use as a fuel for industrial processes as well as non-energy uses as a feedstock for petrochemical or fertilizers. Power generation currently accounts for over 40 per cent of total natural gas consumption, which will increase by average annual rate of only 1.1 per cent, and this too will be led mainly by emerging markets of Asia and the Middle East.

China will have highest share of about 37 per cent of the global increase in natural gas consumption by 2023. The country will become the world’s largest natural gas importer by 2019 and will be importing 171 billion cubic metres (bcm) by 2023, mostly supplied by liquefied natural gas (LNG). Industrial sector will be the largest consumer of natural gas, primarily in Asia, for industrial process as well as feedstock for chemicals and fertilizers. North America and Middle East will need more industrial gas to support their petrochemicals sector. Most of the additional LNG exports and production of natural gas will come from the United States, already the world’s top producer, accounting for 45 per cent of growth in global production and nearly three-quarters of LNG export growth.

China and emerging Asian markets drive the growth in global natural gas consumption. The year 2017 saw strong growth for natural gas, mainly driven by China. Global natural gas demand grew by 3 per cent, the highest since 2010. Demand in China grew by 15 per cent, accounting nearly a third of the global increase. This led to an unprecedented surge in LNG imports, placing China as the world’s second largest LNG importer after Japan.

The consumption in the natural gas-rich regions will also grow, primarily led by the Middle East and North America. Middle East will need it due to increasing needs in industry, power generation and seawater desalination. The United States will need it for chemicals and other industry sectors. The rebound in natural gas availability and use in Egypt will play a large part in increase in consumption in Africa, while Latin American markets are reforming to develop the role of domestic production. Consumption in Eurasia will slightly decrease due to sluggish economic growth. Europe, Japan and Korea are expected to see their natural gas demand stagnate.

The global natural gas market will pass the four trillion cubic metre (tcm) mark by 2022 with an expected average annual growth of 1.6 per cent. However, price competitiveness and market reforms will be critical to sustaining growth in demand in emerging markets. Emerging Asian markets, where half of the global consumption increase will occur, is expected in the medium term to be still using oil-indexed mechanism to define natural gas prices. They will need to open up their market and adopt market-based natural gas pricing mechanism to get the full benefit of the gas market.

After a period of ample supply, the LNG market could start tightening by 2023. The wave of LNG export projects will add some 140 bcm of liquefaction capacity by 2023, increasing global capacity by almost 30 per cent. More than half of the expansion (over 80 bmc) will take place in the United States. Australia and Russia will also provide significant contribution with 30 and 15 bcm respectively. In comparison, pipeline expansion will be more limited, happening mainly in North America (United States to Mexico) and from Eurasia to Europe and China.

The emergence of the United States as a global exporter will impact the traditional features of LNG trade. Within two years LNG trade will grow to ensure ample supply but will challenge the traditional features of supply contracts. The emergence of US exports with flexible destination and gas-indexed pricing will present different models from the standard fixed-delivery, oil-indexed supply agreements. Australia and the United States appear as new global players likely to challenge Qatar in Asian markets.

Nearly all the new liquefaction capacity will be operational by 2020, which may create a problem of surplus. Supplies will compete for customers. Lack of projects, particularly in Asian emerging markets, will impact its consumption and average utilization rate of liquefaction may return to its pre-2017 level by 2023. Therefore, large investment will be needed to enhance the consumption capacity of gas as relatively clean source of energy. (IPA Service)