Examining Cracks in Emerging Asia's LNG-to-Power Value Chain
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Key Findings
Emerging Asia is widely anticipated to be one of the largest growth markets for global LNG demand, but a granular project-by-project and country-level analysis by IEEFA of seven emerging Asian markets reveals that only a small fraction of LNG related infrastructure proposals will be viable.
The analysis finds that, across the country studies, 62% of proposed LNG import terminal capacity and 66% of gas-fired power capacity is unlikely to be built due to fundamental project, country-level, and financial market constraints.
The liquefied natural gas (LNG) industry has framed LNG as a cheap, reliable "bridge fuel" to help countries reduce coal consumption and transition to cleaner renewable energy. For many project developers and countries in emerging Asia, however, LNG is a bridge that may never be built.
Executive Summary
Over the past two years, spot market prices for liquefied natural gas (LNG) in Asia have hit all-time lows, followed by record highs. As a result of the exorbitant prices experienced during winter 2020 and fall 2021, price-sensitive LNG importers in emerging Asia have faced a choice between buying unaffordable, economically burdensome cargoes or imposing energy and power shortages on households and businesses. These wild price fluctuations have demonstrated—perhaps more clearly than ever before—the immense challenges that highly volatile, US dollar- denominated LNG markets present for nearly every emerging Asian energy market.
Yet, many forecasting agencies anticipate the region will be one of the largest growth markets for LNG demand globally over the next two decades. The combination of declining domestic gas reserves in the region and high GDP growth expectations has spawned an overwhelming pipeline of proposed LNG-related infrastructure projects, including import terminals and LNG-fired power plants. Project sponsors and the broader LNG industry have framed LNG as a cheap, reliable “bridge fuel” to help countries reduce coal consumption.
For many project developers and countries, LNG is a bridge that may never be built.
For many project developers and countries, however, LNG is a bridge that may never be built. Fundamental project, country, and financial market constraints in emerging Asia are likely to significantly reduce the pipeline of feasible LNG- related projects and prevent rapid, sustained growth in regional LNG demand. While a minority of projects may be completed, capital for LNG investments will be highly limited due to credit risks and the fundamental lending capacity of the project finance market.
This report examines the proposed pipeline of LNG-to-power projects in seven countries: Vietnam, Thailand, the Philippines, Cambodia, Myanmar, Pakistan, and Bangladesh. It begins by discussing the broader macroeconomic and financial risks associated with an increasing dependence on imported LNG. These risks are summarized in the table below.
