PERTH (miningweekly.com) – Future Asian demand for liquefied natural gas (LNG) has been called into question, with analyst Wood Mackenzie (WoodMac) saying that policy and regulatory uncertainty in Japan and South Korea could result in less new LNG supply being developed.

While the governments of Japan and South Korea are actively promoting greater competition between new LNG suppliers to encourage lower priced LNG, uncertainty regarding nuclear power generation and market liberalisation may have the opposite effect and increase the cost of LNG procurement, WoodMac said.


The two countries currently account for over 50% of global LNG demand.

However, uncertainty over their future LNG demand requirements has led cautious incumbents in Japan and South Korea to buy only the LNG they were assured they would need, while new entrants in the gas and power markets are seeking regulatory clarity before committing to offtake agreements.


WoodMac head of Asia Pacific gas and power analysis Gavin Thompson said both governments recognised their influence on the global LNG market and were actively pursuing initiatives aimed at reducing overall LNG supply costs through increasing competition between global LNG suppliers.

“However, a lack of clarity around the timing and extent of market liberalisation, as well as ongoing uncertainty around nuclear power in their domestic markets, could have the opposite effect.”

Thompson noted that power market liberalisation could erode the regional monopolies of traditional power utilities and enable other players, such as gas utilities, industrials and downstream companies, to enter the market. He added that uncertainty about the future regulatory and competitive environment could result in all players delaying firm LNG procurement decisions. 



In South Korea, gas market liberalisation, contract renegotiations and the potential for new entrants to be able to procure LNG at prices below the weighted average supply cost that Korea Gas Corporation pays is restricting the company’s ability to procure new long-term LNG supply.

Further, optimistic government expectations on future coal and nuclear generation build programmes, besides other issues, consistently underestimated the country's actual LNG requirements.

WoodMac was forecasting Japan and South Korea's requirements for incremental LNG, in addition to that already contracted, to be in excess of 30-million tonnes a year in 2020, but could identify only a small portion of incremental LNG presently being procured.

“The appetite for firm LNG procurement is lower compared to the demand outlook. This likely shortfall will need to be met by the spot market, Qatar or portfolio players,” said Thompson.

He warned that the Asian States’ policies to reduce the costs of LNG could be counterproductive.

“Projects need some security of contracted volumes in order to be assured of commercial viability. Without this security, these projects will not be developed in line with market demand. The wave of supply expected to come on line around 2018 will likely be delayed as a result, and risk LNG procurement costs rising,” he added.

“While portfolio players could aggressively launch new supply to fill this gap, potentially pushing down Pacific spot prices, it is not yet clear how much volume risk portfolio players are willing to take."