Asia’s energy supply looks secure, even as Europe struggles

As Europe grapples with a power shortage, Asia-Pacific’s power supply remains secure, especially as the region still heavily uses coal, data shows.

With supplies of liquefied natural gas in the region being diverted to Europe, power producers in Asia not only have less access to LNG, but have also had to refrain from buying more expensive LNG, driven by strong demand in Europe.

Europe struggles with a gas shortage as Russia cuts its supplies, leaving many countries in an energy crisis in the run-up to winter. Britain’s National Grid has warned of possible power cuts.

On Tuesday, the EU backed away from a proposed price cap for Russian gas when it proposed new measures to tackle high energy prices. Russia had previously said it would halt all fuel supplies to the EU if the bloc imposed these limits, which suppress Russian revenues and the price of raw materials.

S&P Global chief energy strategist Atul Aryal said that while the crisis in Europe and the war in Ukraine have pushed up the prices of fuels such as oil and gas worldwide, it has not hurt energy generation in Asia.

According to the latest gas report from the International Energy Agency, short-term LNG imports into Asia, or LNG, fell by 28% in the first eight months of the year compared to the same time last year. Total LNG imports declined 7% year-on-year.

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“In Asia, instead of gas, countries use coal because coal is here, coal is domestic and less expensive,” Arya told CNBC.

“The flip side is that Asia, which has a growing gas consumption, has stopped for the time being.”

Unlike Europe, which depends on gas for energy generation, gas is less relevant for Asia. It makes up only 11% of its energy mix and imported LNG makes up a small part of that, with most of the gas coming from domestic production, said Alex Whitworth, Asia-Pacific’s head of electricity and renewable energy research.

Coal takes up more of the mix, though it’s going down, Whitworth added. Coal’s share of electricity generation for the Asia-Pacific markets is more than 60%, he said.

The deployment of renewables takes time and will not eliminate the short-term safety concerns… therefore we are likely to see more pressure to increase the supply of fossil fuels and thus reliance on these dirtier fuels.

Warren Patterson

ING Economy

Apart from that, LNG imports into Asia have fallen as a result of the high prices.

According to the latest International Energy Agency gas report, LNG imports into Asia or in the near term fell by 28% in the first eight months of the year compared to the same time last year. Total LNG imports declined 7% year-on-year.

Imports to China – now the largest global LNG importer – fell by 59% the most. The decline in LNG imports for Japan, Pakistan and India was 17%, 73% and 22% respectively, according to the IEA.

The agency explained that not only are high prices deterring Chinese buyers, but also the country’s slowing economy, milder winter temperatures and strong domestic production of its own gas and coal.

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These factors have created opportunities for increased coal use in Asia, amid efforts to reduce fossil fuel use. For example, Korea Electric Power Corporation has started using more coal in recent months, according to the Institute for Energy Economics and Financial Analysis.

The company used about 26% more coal in July this year than the month before, but that was still lower than the volume it used last year, according to data from IEEFA.

“KEPCO’s data suggests that both coal and LNG power generation have declined since May due to higher year-on-year prices. However, there is a clear month-over-month increase for coal power generation,” said IEEFA energy finance analyst, Ghee Peh.

LNG imports into China – now the largest global LNG importer – fell by 59% the most.

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This follows from the fact that Korea – which, like Japan, uses more gas than other Asian markets – has thus had to compete to some extent for limited gas like Europe. But due to the availability of domestic supplies, they are safer than Europe, Whitworth added.

In other words, Asia’s reliance on coal and relatively less reliance on gas imports means it has higher energy security.

In general, tighter LNG supplies and higher prices mean that some countries have to rely on relatively “cheaper and dirtier fuels,” Warren Patterson, ING Economics’ head of raw materials strategy, said in a recent note.

“You would expect the high price of fossil fuels to accelerate green push from governments across Asia, especially given that some of these economies are major net energy importers,” Patterson said.

“However, it is clear that deploying renewable energy sources takes time and will not eliminate safety concerns in the short term.”

“Therefore, we will likely see more pressure to increase the supply of fossil fuels and, with it, the reliance on these dirtier fuels.”

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