backThe Asia-Pacific region is one of the most active gas exploration, production and distribution markets in the world. Rapid economic growth in the region, particularly in China, has led to an increased demand for energy and has spurred the hunt for additional sources of gas supply. Recent technological advances are making certain conventional and unconventional gas reserves in the region economically viable for the first time, and visionary Asian governments are taking an active role in developing the infrastructure required to produce, distribute, market, import and use these resources.
Recent developments in the natural gas industry could provide the catalyst needed to break through market barriers and to further establish natural gas as the regional energy source of choice. Some of the key developments are:
Emergence of Unconventional Energy Resource Development - Unconventional gas reserves are attracting billions of dollars in investment in Asia and Australia. Coal seam gas and shale gas reserves have always been available, but the economics associated with the large-scale development of these resources has historically made such projects technically unfeasible. The development of new technologies, coupled with rising energy prices, have made the exploitation of these reserves economically feasible for the first time. Investors are now racing to market and develop these resources. In fact, almost half of the new liquefied natural gas (LNG) projects proposed worldwide are in Australia, including four coal seam gas to LNG projects. Some forecasters estimate that production out of Australia over the next decade will pass Qatars and reach up to 100 million metric tonne per annum (mmtpa). Demand in the region is also rapidly increasing, with estimated gas demand for Asia/Pacific buyers reaching 150-200mmtpa by 2020. China has shown a particular interest in importing gas from these unconventional sources to help satisfy the demand of its rapidly growing economy (e.g. Australian coal seam gas and Canadian shale gas via LNG shipments). Whether the further development of these unconventional reserves will ultimately lead to an abundance of cheap gas in the Asia-Pacific region remains to be seen.
Project Financing- The recent financial crisis has resulted in a substantial shrinking in the lending capacity and appetite for long-term project finance in the commercial-banking market for the time being. In the post-crisis world, large gas projects are looking beyond the traditional international commercial banks to help fulfill their project financing requirements. For example, in the PNG (Papau New Guinea) LNG project, sponsors looked to banks in the countries of potential gas buyers for financing. One source of supplemental funding has been the Chinese government. China has shown a willingness to commit large sums of money to projects that commit substantial portions of their product to Chinese buyers. Whether in the coming years China will emerge as one of the main drivers of gas development in Asia and beyond may ultimately depend on its continued willingness to take an active role in this type of project financing.
New-Generation Multi-Use/Multi-User Project Facilities- An increased emphasis on services flexibility has led to the development of open-access multi-user project facilities. These facilities are owned by a third party and act as a hub, providing LNG importing, reloading and regasification, and storage services through terminal use agreements. Asias first major multi-user terminal for LNG is now under construction in Singapore. The terminal is currently owned by the Singapore Government and will serve as a hub for physical LNG trading and regional redistribution. Once completed, the facility will have a capacity of 3.5 million tons per annum (mtpa) and will have the ability to be expanded to over 6mtpa. Whether this trend of multi-user facilities will continue to spread throughout Asia will be influenced by the perceived success of the Singapore LNG terminal.
Floating Technology - Advances in technology surrounding offshore floating LNG import terminals could open the door to floating LNG liquefaction in Asia. The worlds first gravity-based offshore LNG facility (Italys Adriatic LNG terminal) received its first cargo in August 2009. The Adriatic terminal has an annual capacity of 6mpta (about 10 percent of Italys yearly gas demand) and is linked into an onshore metering station tied to Italys gas network. Golar LNG recently developed the worlds first Floating Storage Regasification Unit (FSRU) converted from an existing LNG carrier (the Golar Spirit). The Golar Spirit (currently in Brazil) has the ability to receive LNG from standard LNG carriers, re-gasify the LNG onboard and provide gas send-out through flexible risers and pipeline to shore. However, the trend has yet to actually occur on the liquefaction side. As floating technologies continue to emerge, will these advancements lead to Asia having the worlds first offshore liquefaction plant?
De-Linking of Oil and Gas Price Movements - Broad price gaps between crude oil and natural gas have created pressure on many long-term oil price-linked LNG and gas contracts. Over the past two years the market has seen some de-linking of oil and gas price movements (with international oil prices ranging from $10 to $15/mmbtu higher than the average spot gas price). These broad price gaps have led to a rash of price-reopener requests and subsequently, an increase in international arbitration proceedings resolving these price disputes. Will this price disparity continue and ultimately result in Asian gas prices being somewhat delinked from oil prices? If so, future long-term gas contracts in Asia and beyond will need to develop and employ alternative pricing mechanisms that arent firmly tied to crude oil indexes.
Government Intervention Forcing Market Gas Development - Governments are taking an increased role in promoting gas exploration and development and gas utilization in new and developing gas markets. Clean energy policies and rising fuel costs are motivating governments to pass legislation and to provide concessions that promote the growth of a secure and reliable energy supply. Natural gas is continuing to emerge as the preferred source of energy in the Asia-Pacific region. In addition to contributing to project equity and debt financing, governments are instigating interim-period pricing support and are taking a much more active role in the construction of critical infrastructure. The development of domestic gas markets in Asia could be the answer to the regions energy demand needs. However, the speed of market development will be key in determining whether a sustainable energy supply can be established before the limited life cycle of government support expires.
Thus, recent developments in the gas industry, coupled with strong governmental support in the region, have led to not only a continued and increased demand for natural gas in Asia, but also to an increase in the exploration and development of natural gas reserves across the world. As the natural gas market continues to develop in Asia, energy practitioners must be able and ready to respond to the demands and innovations that will follow.