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Asia LNG Demand Outlook Bullish, As Near-Term Headwinds Fade


Fitch Solutions Sector Intelligence  

 

    THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data are solely derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.

    Asia LNG Demand Outlook Bullish, As Near-Term Headwinds Fade

    • 01 Dec 2021
    • Asia
    • Oil & Gas

    Key View:

    • Asia’s appetite for LNG, along with that for the broader energy slate, is forecast to record another strong post-pandemic rebound in 2022 as strict restrictions are gradually eased.
    • Looking past short-term headwinds posed by Covid-19 the LNG demand growth outlook across Asia over a longer-term horizon is still highly bullish, with gas set to perform a crucial role in the region’s energy transition efforts over the coming years.
    • Of Asia’s big three LNG importing markets, LNG demand growth in China looks poised to outperform, whereas long-term growth outlooks for South Korea and Japan now carry greater uncertainties amid shifting political and regulatory landscapes.
    • However, slowing growth in the latter two will be partly offset by rising LNG demand in Asia’s EMs, some of which are expected to make their first forays into LNG imports in the next three to four years.

    Asia’s appetite for LNG, along with that for the broader energy slate, is forecast to record another strong post-pandemic rebound in 2022 as strict restrictions are gradually eased. Many markets in the region saw reopening efforts derailed in 2021 due to persistent headwinds stemming from Covid-19, more so following the emergence of the more contagious Delta variant. The region’s most populous gas markets including Japan, India and South Korea, continued to fluctuate between different levels of lockdown measures throughout 2021, while many continued to abide by a ‘Zero Covid-19’ strategy, whereby tight restrictions were kept in place despite low number of reported new infections. In addition, the majority of Asia’s EMs also suffered from slow progress in vaccinations, due to logistical factors, regulatory hold-ups and general public dissent, further stunting state-led reopening plans. These headwinds should abate in 2022. A general decline in the number of new infections, next to improving vaccination rates are allowing more economies to recalibrate their pandemic response policies to ‘Living with Covid-19’, from one primarily focused on prevention to that of curtailment and management, although those lagging behind on the vaccination front will continue to face downside risks in the short-term. Out of 12 LNG importing markets in Asia, seven are outperforming the global average in terms of the share of total population fully-vaccinated against Covid-19, while notable laggards include the likes of Bangladesh, India, Indonesia, Myanmar and Pakistan.

    Though Some Markets Still Subject To Risks As Vaccination Lags
    Select Asia Markets - % Of Population Fully Vaccinated Against Covid-19 vs Global Average

    Note: data correct as of November 25, 2021. Source: Global Change Data Lab, Fitch Solutions

    Looking past short-term headwinds posed by Covid-19 the LNG demand growth outlook across Asia over a longer-term horizon is still highly bullish, with gas set to perform a crucial role in the region’s energy transition efforts over the coming years. More of Asia’s economies are now onboard the clean energy transition with the recent COP26 climate summit held in Glasgow further incentivising markets to double down on their existing climate pledges and set even more ambitious targets to decarbonise. In addition to China, South Korea and Japan, the number of markets in Asia to have set net zero timelines have grown to 16, including the majority of its LNG importers with the exceptions of Bangladesh, Singapore and Myanmar. These markets especially the EMs share similarities in that they still view gas as an integral stepping stone before making a fuller transition to using renewables energy sources, with reasons ranging from availability, to it being a more reliable baseload fuel compared to the intermittent nature of renewable sources, and also in markets with histories of having relied on domestic gas for power generation, the ability to leverage existing infrastructure.

    Steady Growth Ahead Following Strong Post-Pandemic Rebound In 2022
    Asia - Natural Gas Consumption, bcm (LHS) & % chg y-o-y (RHS)

    f = Fitch Solutions forecast. Source: JODI, Fitch Solutions

    Of Asia’s big three LNG importing markets, LNG demand growth in China looks poised to outperform, whereas long-term growth outlooks for South Korea and Japan now carry greater uncertainties amid shifting political and regulatory landscapes. The bullish outlook for China derives from its ambitious climate ambitions as outlined in the new 14th Five-Year Plan (14FYP), next to ongoing efforts to boost the share of gas in the overall energy mix through aggressive industrial and residential coal-to-gas switching. The domestic LNG sector is also becoming more liberalised and therefore more conducive for investments and further expansion with more non-state players including foreign entities being given permissions to partake in direct LNG import and distribution. The long-term backdrops for South Korea and Japan are less clear. The situation in South Korea remains in a bit of a flux, as it prepares to hold its 20th presidential election in March 2022 and leading candidates widely divided on their energy policies, particularly with regards to their stances against coal, nuclear and LNG. Japan meanwhile has declared the ambition to move away from fossil fuels including LNG as part of broader decarbonisation aims and instead, has identified renewables and hydrogen as the focus of its energy transition efforts. Indeed, Japan’s new strategic energy plan to 2030 envisions the share of LNG in the power mix to fall to 20% by 2030 from the current 37%. If realised, this could equate to the loss of some 34bcm of LNG demand in the next decade, although the targets have been labelled as being overly ambitious by industry stakeholders.

    China To Spearhead Import Capacity Growth, As More EMs Look To LNG
    Asia - Under Construction & Proposed LNG Import Projects, mtpa
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