Abstract
In a context marked by tensions on energy markets (oil and gas in particular) and the constant rise of environmental concerns, several Asian countries are exploring the most promising ways to reconcile economic growth, energy consumption and respect for the environment in a globalized world. Liquefied natural gas (LNG) has emerged as the most appropriate energy to meet environmental criteria due to its multiple advantages: cleanliness, energy efficiency, cost competitiveness and flexibility. As a partner in renewable energies, it is the energy of the future that will play a decisive role in the energy transition. LNG growth is due to technological innovations in the shipping industry. The purpose of this chapter is to discuss the issue of environmental and energy challenges in the era of globalization in the Asian region. Hence, this chapter consists of four main sections. The first section highlights the recent trends in the LNG industry which have led to the emergence of new techniques, new processes and new markets. Recent developments in LNG markets have also been discussed in this section with a special focus on the “Big 5” Asian buyers. The second and most important section describes the key commercial aspects of LNG, namely LNG pricing, LNG contracts and contract renegotiation, particularly in the new context of US LNG exports. The third section focuses on the issue of globalization of LNG markets and contributes to current affairs debate on the creation of an LNG trading hub in Asia. The fourth and last section is devoted to the environmental aspects of LNG use and to discuss the intentions of the main importing countries for an energy mix in favour of LNG and other less polluting (renewable) energy. Due to data constraints, we favour the descriptive approach—this approach is nowadays neglected—which constitutes a solid basis for further research.
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- 1.
Natural gas is produced from associated gas of oil fields or independent gas fields, comprised mainly of methane. Because it is in gaseous form at normal temperature/pressure, transported by pipeline in the gaseous form, or by tanker as LNG after becoming a liquid form by being cooled to −162 °C, either method of which is adopted.
- 2.
The modern LNG industry began in September 1964 with the delivery by of the first shipment of 27,000 m3 of Algerian methane on board the “Methane Princess” vessel bound for Convey Island regasification terminal in Great Britain. Methane Princess arrived at his destination on 12 October 1964, after a journey of 1600 miles (2600 km).
- 3.
Compagnie Algérienne de Méthane Liquide.
- 4.
Throughout this chapter, we use the International Energy Agency’s (IEA) definition of the Asia and Oceania region.
- 5.
Estimates of Unconventional gases remain speculative. Thus, it should be recalled that the figures of “recoverable resources” made public by the US Energy Information Administration (EIA) are for some countries (provisional figures in T.m3), as follows: China 36.1; USA 24.4; Argentina 21.9; Mexico 19.3; South Africa 13.7; Brazil 6.4; Poland 5.3; France 5.1; total world 197 T.m3.
- 6.
SECA: Sulphur Emission Control Area.
- 7.
ECA: Emission Control Area.
- 8.
The first LNG mega-trains in the world were inaugurated in Qatar, and they still have no equivalent today.
- 9.
See, for example, the International Gas Union (IGU), [49] World LNG Report.
- 10.
According to a new, the existing fleet of small LNG vessels consists of 27 LNG carriers and 17 LNG/LPG carriers plus some LNG bunkering units.
- 11.
- 12.
Australia was ranked as the fourth largest exporter of LNG in the world in 2010, after Qatar, Indonesia and Malaysia, according to the US Energy Information Administration (EIA). Australia is now the world’s second-largest LNG exporter. It will become the world’s largest LNG exporter by 2020.
- 13.
According to the GIIGNL definition, the duration of a short-term contract is less than or equal to 4 years.
- 14.
The re-export must also cover the costs of handling the LNG in the port where the re-export will take place.
- 15.
Qatar is currently the leader with low gas production costs ranging from 0 to $2 per MMBtu. This is also the case in some regions of Russia. Similarly, in 2011, this country alone accounted for one-third of LNG traded on the spot and short-term market, followed by Nigeria (12%) and Trinidad & Tobago (11%). Moreover, it accounted for 31% of all international LNG trade, with 75.4 Mt.
- 16.
- 17.
Petrostrategies, p. 4, 17 September 2018.
- 18.
In comparison with 2010, imports recorded their highest annual growth rate (+9.9%).
- 19.
Unless otherwise noted, all figures in this section are taken from the latest report “IGU 2018 World LNG Report” available on website: www.igu.org/news/2018-world-lng-report.
- 20.
GIIGNL [33], The LNG industry, GIIGNL annual report 2018.
- 21.
Indonesia began exporting LNG in 1977 and, in 1984, had overtaken Algeria to become the world’s leading supplier of this product.
- 22.
Called also “Chinese Taipei.” For an explanation of this term, see for example:
—What is “Chinese Taipei”? The Economist, Apr 9th 2018 also available on www.economist.com.
—Why is Taiwan Called Chinese Taipei?, available on www.scienceabc.com/social-science/why-is-taiwan-called-chinese-taipei.html.
- 23.
To understand China’s energy strategy, in particular its international strategy through its three state companies, NOCs (Sinopec, PetroChina and CNOOC), we refer the reader to Suisheng [94] article.
- 24.
This itinerary shortens the voyage for US LNG to Asia by 22 days and saves approximately 30% in cost per roundtrip.
- 25.
Crossing the Northern Sea Route in the Arctic allows for a 30% reduction in CO2.
- 26.
See more details below.
- 27.
Globally, World gas trade is around 70% by pipeline and 30% as LNG. In 2017, LNG’s share in total trade has increased to 32% (versus 30% in 2015).
- 28.
Another classification exists. It breaks down the market into two distinct LNG trade regions: Atlantic Basin versus Pacific Basin.
- 29.
In all three markets, there are significant price differences between the North American market (US Henry Hub) and the Asian market (Japan LNG), and an intermediate price for the European market (UK NBP). Much of the difference is due to the freight differential, due to the remoteness of the European and Asian markets from major sources of LNG supply. The gap has narrowed in recent years and is now only a few dollars.
- 30.
Consumer contracts normally cover a period of 20–30 years with volume and price commitments. This is the most common form of pricing for direct sales to consumers in developing countries.
- 31.
Delivered ex-ship or Ex-ship contract: in an LNG ex-ship contract, ownership of the LNG transfers to the buyer as the LNG is unloaded at the receiving terminal; payment is due at that time. The two terms are used mainly in LNG shipping contracts. See the Glossary of LNG Terms, published by Petroleum Economist and PwC, 2006.
- 32.
Free on board: in an LNG FOB contract, the buyer lifts the LNG from the liquefaction plant and is responsible for transporting the LNG to the receiving terminal. The buyer is responsible for the shipping, either owning the LNG ships or chartering them from a ship-owner. In a FOB contract, the seller requires assurance that the shipping protocols provide a safe and reliable off take for the LNG to prevent disruption to the Sales and Purchase Agreement (SPA).
- 33.
See Appendix 1.
- 34.
Incoterms is a registered trademark of the International Chamber of Commerce (ICC).
- 35.
A few years ago, at the tenth ministerial session of the member countries of the Gas-Exporting Countries Forum (GECF), held in April 2010 in Oran, the countries of this forum agreed to index gas prices to oil prices on the spot market (short term).
- 36.
IEA, Gas Resiliency Assessment of Japan, 2016.
- 37.
According to the GIIGNL definition, the short term is less than or equal to 4 years.
- 38.
In Asia, long-term LNG contracts have begun a wave of price renegotiation and reviews. Examples include the renegotiations between: India versus Qatar, India versus Australia, India versus Russia, China versus Qatar, China versus Australia and South Korea versus Qatar.
- 39.
More recently, for Driftwood LNG project, Tellurian offers potential LNG customers several formulas: two classical formulas (buy LNG from the liquefaction plant or lease processing capacity for your own gas) and an innovative formula which involves joining as an investor, with a share in the project’s entire value chain, including access to gas production, gas transmission and liquefaction (see Petrostrategies [77]).
- 40.
It should be noted that most of the LNG projects being considered in the United States are located along the Gulf of Mexico. The only exception is Jordan Cove, a project located on the West Coast. It would therefore compete with Canadian projects in the region for proximity to Asian markets.
- 41.
In October 2018, the average price of spot-LNG imported into Japan was contracted is $10.7 per MMBtu.
- 42.
Our own translation of the original French text.
- 43.
See Shahbaz et al. [88] regarding definition of globalization.
- 44.
See Yergin [100].
- 45.
Brito and Hartley [9].
- 46.
For more details, see Sect. 2.1.1.
- 47.
For more details on these results, visit energy post’s website at http://www.energypost.eu/globalisation-gas-market-going-longer-think/.
- 48.
For more details, see the following link http://www.gasstrategies.com/blogs/drawn-out-ball-game-asian-spot-lng-prices-stay-below-long-term-contract-prices.
- 49.
According to the new 5th Strategic Energy Plan adopted by Cabinet decision on July 2018, the aim is for nuclear energy to account for 20–22% of energy output by 2030. There are five plants with a total of nine reactors that have met the new standards. For further discussion refer to the website of the Ministry of Economy, Trade and Industry http://www.meti.go.jp.
- 50.
See ADB [2].
- 51.
World Gas Conference, Kuala Lumpur, June 5, 2012.
- 52.
The report is entitled “Golden Rules for a Golden Age of Gas.”
- 53.
There has been a growing interest in hydrogen for several years. Indeed, hydrogen, the only non-carbon fuel, is found in abundance on Earth, in the form of water or hydrocarbons, mainly in Argentina, Australia, Chile, Morocco, Oman, Saudi Arabia or South Africa. The multiple advantages of this gas make it a very efficient energy vector by 2050 and beyond. For more information on this topic, see—for example—ACIL Allen Consulting [1], Commonwealth of Australia [11], McKinsey [65] and METI [68].
- 54.
At year end 2017, the R/P ratio for the natural gas was 52.6% compared to 61.9 in 2001.
- 55.
So the 4A’s are abundance, availability, affordability and acceptability.
- 56.
For the definition of this term, see for example www.planete-energies.com/en/medias/close/about-energy-mix.
- 57.
GECF (Gas-Exporting Countries Forum) countries possess two-thirds of proven conventional gas reserves and have the ability to provide a secure gas supply. The development and integration of gas networks can improve access to energy, stimulate development and improve welfare. Doha, the capital city of Qatar, hosts the permanent headquarters of the Secretariat of the GECF.
- 58.
DBS Bank, Asian Insights SparX report, 2030 Energy Mix, 5 July 2018.
- 59.
More detailed information is available on the METI website.
- 60.
Moon Jae-in was elected by a landslide on 9 May 2017 to replace ousted President Park Geun-hye.
- 61.
Regarding the reform of South Korea’s energy industry, see the OIES paper, NG 132, “South Korea’s Energy Policy Change and the Implications for its LNG Imports,” Keun Wook Paik, June 2018.
- 62.
In order to address the challenges of climate change, the signatory countries to COP21 agreed on 3 main objectives:
(i) Maintaining temperatures below 2 °C (by 2100) above pre-industrial levels and taking all possible measures to prevent temperatures from rising by more than 1.5 °C;
(ii) Resilience and adaptation to climate change, in particular through “low carbon” development and;
(iii) Adoption of financing methods to achieve this “low carbon” development.
- 63.
This subject has generated long and often contradictory debates between the Pros and Cons in the USA and outside this country that initiated this process. For this reason, we cannot deal with this subject in detail in this chapter. However, we refer the interested reader to the question of the exploitation of non-conventional gases (shale gas in particular) to consult the following reports, studies and publications (non-exhaustive list): Deijns [14], Le [60], UNCTAD [95].
- 64.
See, for example, Sax J. Is Fracking Good or Bad? August 13, 2014 [Online]. http://blog.petrieflom.law.harvard.edu/2014/08/13/is-fracking-good-or-bad/(page consulted 26 September 2018).
- 65.
See website www.diplomatie.gouv.fr.
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Appendices
Appendices
1.1 Appendix 1
Characteristics of Asia-Pacific LNG price indexes
Index | Japan/METI | JKM | RIM Japan | ANAE | EAX | SLInG |
|---|---|---|---|---|---|---|
Publisher | METI | Platts | RIM Intelligence | Argus Media | ICS | SGX and EMC |
Start of stats | Mar. 2014 | Feb. 2009 | Feb. 2016 | 2012 | Jan. 2014 | Sept. 2014 |
Ship (Cargo) size | Any | 2.9–3.7 Bcf | 2.9 Bcf tankers & partial cargoes | 2.9–3.3 Bcf and partial cargoes normalized | 0.6–5.6 Bcf & partial volumes | 2.9–3.7 Bcf |
Index coverage area | LNG delivered to Japan | Spot physical cargoes delivered into Japan and South Korea | Japan, South Korea, Taiwan and China | Japan, South Korea, Taiwan, China | Physical cargoes to Japan, South Korea, Taiwan & China | Vessels on the water with potential to deliver to Singapore |
Assessment type | Census sent from METI to market players | Daily phone or electronic survey of market players | Trading info from OTC market; Price assessment from JOE LNG market deals & bids/offers | Daily phone or electronic survey of market participants | Daily phone or electronic survey of bids, offer (first-hand or observed) | Survey of select market participants |
Assessment frequency | Monthly price sa segments | Daily, with market close prices | Assessed & published daily | Assessed & published daily | Assessed & published daily | Half-monthly assessments, published twice weekly |
Sale or delivery | DES contracted and arrival | DES | DES | DES | DES | FOB |
Assessment forward range | Any forward period for LNG delivery (contract-based); within-month (arrival-baaed) | Prompt delivery; 3rd & 4th or 4th & 5th half-month forward | Half-monthly assessments for the 3rd–5th half- months forward | Prompt delivery; 2nd–5th half- months forward | 3rd–6th half-months out | 3rd–6th half-months out |
Index calculated | Contract-based (for deals made in-month) and arrival based (for cargoes arriving that month) | Prompt or deferred spot prices averaged for assessed half-months | Monthly average price for half-months calculated daily | Physical and forward swap are assessed daily for forward half-months | Daily front and second month ahead prices for all countries averaged | Half-monthly prices are averaged for the first full month |
Types of trades included | Spot LNG to be delivered | Spot LNG to be delivered | Deals done and bids/offers on LNG cargoes | Spot LNG to be delivered in 6–12 weeks | Global prompt & mid-term charter LNG | Spot LNG able to be shipped to Singapore |
Number of contributors | −15 | Not specified in Methodology | Not specified in Methodology | Not specified in Methodology | Varies daily; no minimum data threshold | 50 |
Contributor requirements | Companies/ consumers of spot LNG | Any market participant; buy/ sell prices must pass the “repeatability” test | None; market prices assessed from OTIC market trading information | All credible mark market sources, market participants and brokers/trading platforms | Active or past LNG industry participants, not only the physical market | Active in the physical LNG market |
Data cleaning | N/A | Data aligned with standard assessment specifications | Higher bids & lower offers are prioritized as closer to market values | Market condition adjustments if assessment hierarchy would skew results | Data verified with trading counterparty technical-purpose cargoes excluded | Top 15% and bottom 15% removed as outliers |
1.2 Appendix 2
Note Last Updated December 2018. Source Waterborne Energy, Inc. Data in $US/MMBtu
1.3 Appendix 3
Small-scale LNG Value network, wholesale and retail.
Source Shell (edited version)
1.4 Appendix 4
Existing and potential future emission control areas and Sulphur Regulations.
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Oudjida, S. (2019). Asian Energy and Environmental Challenges in Era of Globalization: The Case of LNG. In: Shahbaz, M., Balsalobre, D. (eds) Energy and Environmental Strategies in the Era of Globalization. Green Energy and Technology. Springer, Cham. https://doi.org/10.1007/978-3-030-06001-5_15
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