Why Is Asia Buying More Australian Gas While Cutting Carbon?
Synopsis
As Asia accelerates efforts to cut carbon emissions, there's a compelling contradiction at play. While renewable energy investments are scaling up across the region, Asia continues to increase its purchases of Australian gas. Why…
As Asia accelerates efforts to cut carbon emissions, there's a compelling contradiction at play. While renewable energy investments are scaling up across the region, Asia continues to increase its purchases of Australian gas. Why is this happening? This blog explores the key factors driving the rising demand for liquefied natural gas (LNG) exports, its role in Asia's energy transition, and the challenges it faces in a decarbonising world.
Australian Gas and the Asian Market
Australian gas has been a crucial player in the global energy market, particularly in Asia. Experts predict that demand for Australian LNG will grow significantly in the coming years.
Shell's Revised LNG Outlook
Shell, one of the world’s largest producers of natural gas, recently increased its long-term demand estimates for LNG by 10 percentage points. The energy giant forecasts a 60% growth in global LNG consumption by 2040, driven by economic expansion across Asia.
Woodside's Prediction of Growing Demand
Australia’s largest LNG producer, Woodside, also anticipates a 50% rise in demand by 2034, powered by Asia's population growth, improving living standards, and the quest for cleaner energy alternatives.
LNG has proven to be a lucrative export for Australia, generating an estimated $64 billion for the 2024-25 financial year, according to market analysts. Its primary buyers include China, Japan, South Korea, and Taiwan, with LNG prices spiking amid geopolitical tensions like Russia's invasion of Ukraine.
The Role of LNG in Asia's Energy Transition
Asia’s growing appetite for Australian gas is largely attributed to LNG’s emerging role as a "transition fuel." While not entirely carbon-neutral, LNG offers a lower-emission alternative to coal-fired power stations, a critical factor in regions still heavily reliant on coal for electricity and heating.
Cleaner Than Coal
Burning LNG for energy generates significantly fewer greenhouse gas emissions compared to coal. Woodside estimates that switching just 20% of Asia’s coal-fired power stations to gas-powered plants could reduce carbon emissions by 680 million tonnes annually—a figure more than one-and-a-half times Australia’s annual emissions.
Backup for Renewable Energy
LNG is also seen as a stabilising force in renewable energy grids. Solar and wind power, though increasingly cost-effective, are intermittent sources of energy. Gas-fired plants can "back up" renewables during periods of low sunlight or wind, ensuring a stable power supply.
Growth in Gas Infrastructure
Countries like India and China are rapidly expanding their gas infrastructure to meet future energy demands:
- China plans to add piped gas connections for 150 million people by 2030.
- India aims to establish gas access for 30 million households within five years.
This infrastructure investment aligns with their broader goals of reducing coal dependency.
Hurdles Facing Australian Gas in Asia
Despite optimistic growth predictions, LNG’s future in Asia isn’t without its challenges. Rising costs, competition from other energy sources, and the global push for renewable energy may alter its trajectory.
Cost Barrier
According to Christopher Doleman of the Institute for Energy Economics and Financial Analysis, LNG remains significantly pricier than coal. Current LNG prices in Asia hover around $US13 per million British thermal units, whereas coal remains considerably cheaper. For LNG to compete more effectively, prices would need to fall to $US4-5 per unit—a level insufficient for many facilities to turn a profit.
Declining LNG Demand in Key Markets
Japan, Australia's largest LNG buyer, has reduced its demand by 20% since 2018. Its plans to cut thermal electricity generation from 70% of its energy mix to 30-40% by 2040 suggest demand may decline further. Additionally, countries like Vietnam have scaled back their LNG-to-power projects due to cost concerns.
Potential Oversupply Risks
Global supplies of LNG are set to increase significantly, with new projects starting in the United States and Qatar. UBS analysts warn that these additional supplies might create a global LNG surplus by 2027, potentially driving prices down and making it harder for Australian LNG exports to maintain profitability.
The Fossil Fuel Dilemma
The continued reliance on Australian gas also raises some ethical and environmental questions. While LNG is cleaner than coal, it is still a fossil fuel—a major emitter of carbon dioxide and methane. For nations like China and India, whose long-term goals include reducing dependency on all fossil fuels, the pivot to gas could be short-lived.
Additionally, experts argue that over-reliance on LNG could delay the adoption of cleaner technologies. Investment in renewable energy, energy storage, and grid upgrades may prove to be more sustainable approaches to meeting Asia’s energy demands.
Australian LNG: Balancing Opportunity and Climate in Asia
The dual forces of climate change and rising energy demand in Asia create a complex landscape for Australian gas exporters. While LNG can play a vital role as a "transition fuel," its long-term viability hinges on several key factors:
- Successful cost reduction to remain competitive with other energy sources.
- Continuous innovations to lower its carbon footprint.
- Collaboration with policymakers and businesses to balance short-term profits with long-term sustainability goals.
Ultimately, the role of Australian LNG in Asia’s energy future is a balancing act between meeting immediate energy needs and adhering to global climate commitments.
Source
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