On twenty sixth January, america (US) introduced a pause on permits for brand spanking new US liquefied pure fuel (LNG) export services. The transfer sparked outcry amongst trade teams in Asia, which rapidly declared the transfer would damage the area’s power safety and local weather targets. Nevertheless, their considerations are unfounded for 5 easy causes:
First, the choice doesn’t have an effect on US exports from current or under-construction services. The US is at the moment the most important LNG exporter worldwide and has essentially the most capability underneath building. 5 tasks are at the moment being constructed, which might almost double US LNG exports this decade.
The US determination doesn’t have an effect on these tasks and solely applies to proposed services looking for export authorisations from the U.S. Division of Vitality. A lot of the impacted tasks had been within the very early phases of growth, and none have secured contracts with prospects for over 50 per cent of their capability.
Second, there can be loads of LNG to go round. The world is on tempo for report will increase in international LNG export capability this decade, and the Institute for Vitality Economics and Monetary Evaluation (IEEFA) anticipates that the incoming flood of provide is more likely to end in a worldwide glut. In 2026 alone, the world may see a 13 per cent improve in LNG provide capability — the most important annual improve in historical past — a lot of it from the US and Qatar. The US allowing pause will do nothing to ease this glut or forestall already under-construction capability from coming into the market.
The flood of provide coming on-line additionally implies that nations are unlikely to purchase extra Russian LNG due to the US determination. Traditionally, the most important opponents for US LNG in Asia have been Qatar, Australia, and Malaysia. These nations provided 67 per cent of China’s LNG imports in 2023, in comparison with simply 4 per cent from the US, and are more likely to proceed being the dominant suppliers to Asian markets. For instance, Bangladesh finalised a 15-year deal to purchase Qatari LNG simply days after the US announcement.
Third, the US’s largest prospects, Japan and South Korea, are set to dramatically scale back their LNG demand. In 2023, Japan’s LNG demand fell 8 per cent and has declined at a mean fee of three per cent since 2014. IEEFA estimates that increased nuclear and renewable energy era may trigger Japan’s LNG demand to fall by 27 million tons by 2030, almost a 3rd of its present imports. Many Japanese fuel and energy utilities have publicly acknowledged that they’re more likely to have extra LNG attributable to declining home demand. JERA, for instance, has mentioned it expects to divert provides to different nations. Many Asian utilities have opened buying and selling desks in Europe, hoping to commerce extra LNG relatively than provide residence markets.
South Korean LNG demand fell 4 per cent in 2023. The nation’s local weather and power targets recommend LNG demand may fall 20 per cent by 2036, as LNG is displaced by will increase in renewable power. From 2021 to 2023, working losses at Korea’s state-run energy utility totaled over US$35 billion attributable to excessive LNG and different fossil gasoline costs, including monetary impetus to cut back LNG dependence.
Fourth, LNG is simply as dangerous to the local weather as coal. Arguments that the US determination will hurt Asia’s local weather targets are based on the false narrative that LNG is cleaner than coal. The truth is, methane — the primary element of pure fuel and LNG — is a considerably extra highly effective greenhouse fuel than carbon dioxide. At leakage charges of simply 0.2 per cent, pure fuel might be as dangerous to the local weather as coal. Within the US Permian basin, leakage charges might attain upwards of 9 per cent.
Furthermore, pure fuel shouldn’t be meaningfully displacing coal in Asia. In China, for instance, pure fuel and coal demand have elevated in lockstep, for the reason that fuels carry out separate features within the power combine. As a less expensive gasoline supply, China consumes coal in energy-intensive industries resembling electrical energy, cement, and metal, whereas pure fuel serves extra specialised roles. Elsewhere in Asia, net-zero targets depart no room for unabated coal or LNG. Utilities like Tokyo Fuel have just lately allowed LNG provide offers to run out, recognising the necessity to decarbonise.
Fifth, the most important LNG consumers from new US tasks are LNG merchants, not finish customers in Asia. After Russia’s invasion of Ukraine, LNG merchants made fortunes promoting shipments to Europe. Since then, oil and fuel majors and commodity merchants have devoured up LNG provides from new tasks and opened buying and selling desks in goal markets, hoping to maximise returns from LNG resales. In some circumstances, whole LNG export tasks have been constructed solely primarily based on buy commitments from merchants. Within the US, estimates recommend that two-thirds of the export capability already underneath building will go to merchants, not finish consumers in Asia and Europe. These firms are successfully betting on their skill to resell LNG volumes at a markup over the long run.
In different phrases, it’s not Asia’s power safety and local weather targets in danger from the US determination, it’s the worldwide oil and fuel trade’s unquenchable thirst for revenue.
Sam Reynolds is a analysis lead, LNG/Fuel, Asia, on the Institute for Vitality Economics and Monetary Evaluation (IEEFA).
This commentary was first revealed on IEEFA’s web site.
