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Demand for liquefied natural gas in Asia is rapidly cooling

While energy buyers in Europe are being reorganized to get rid of Russian gas, as a result of Vladimir Putin’s war against Ukraine – and rising natural gas prices – Asian countries are suffering a severe sticker.

The demand for liquefied natural gas in Asia has already been very successful. In the long run, the effects could be even deeper: Slower growth in Asian LNG demand by the end of the first half of the decade. For key LNG exporters in Australia and for companies like Shell and Woodside Petroleum, this could be the opposite of structural growth for those who invest in it, although higher contracted sales prices will help mitigate the blow.

The massacre this winter is already spectacular. Overall, Asia Pacific LNG imports fell 10% in the first quarter of 2022 from a year earlier, according to Wood Mackenzie advisory data. LNG imports from China, Japan and India fell by 11%, 14% and 25%, respectively. Asian LNG prices fell roughly fivefold last year to $ 34 million in the UK Thermal Unit (MMBtu) at the end of March, but were still lagging behind the European benchmark, at $ 39 MMBtu per share, according to a Rystad Energy consultancy. Some Asian buyers began redirecting purchased goods to take advantage of high European prices even before the war began: about 10 cargoes were diverted from Asia to Europe in December, according to Xi Nan, vice president of LNG markets in Rystad.

There is also evidence of a backlash against coal and oil. Valery Chow, vice president of Wood Mackenzie, noted that China, India and Southeast Asia are looking to increase their use of coal for energy generation, and that India’s industrial customers are switching to naphtha and kiln oil in the face of steadily high and volatile LNG. prices.

While it may still be too early to talk about the destruction of sustained gas demand across Asia, high LNG prices are likely to last for several years, weakening growth in Asian demand and possibly furthering the development of Western Australian LNG exports. If new Russian pipelines were to start supplying large volumes of gas to China, it is likely that this would increase the impact.

However, Mr Wood Mackenzie’s Chow says growth in demand for LNG in Asia, especially in China, South Asia and Southeast Asia, is likely to pick up in the second half of the decade as new liquidation capacity is put in place and LNG prices soften. The total demand is expected to rise from around 270 million metric tons in 2021 to 380 million metric tons in 2030.

Asian energy demand remains volatile and there is little reason to doubt that this will change. But in the coming years, overall growth in Asian LNG demand may be sluggish. It will be held by coal and renewable energy vendors. And LNG traders who are heavily dependent on the region will be protected from weak demand with long-term sales contracts. But getting new contracts at the finish line — unless offered on very favorable terms at current point prices — could be a challenge.

Write Megha Mandavia at megha.mandavia@wsj.com

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Demand for liquefied natural gas in Asia is rapidly cooling

Source link Demand for liquefied natural gas in Asia is rapidly cooling

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