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Natural Gas Report

Strong economic growth, low gas prices and environmental goals are transforming natural gas demand in Southeast Asia.

Southeast Asia's Journey Toward a Cleaner Energy Future

The IEA forecasted in its Southeast Asia Energy Outlook 2017 that demand for natural gas will grow 60 percent by 2040, because of rising consumption in power generation and industry. Research and consultancy firm Wood Mackenzie estimates that by 2035, more than half of the region’s gas demand will be met by LNG.

Thailand expects that its LNG imports via long-term contracts will climb to 35 million tonnes per year (mmtpa) by 2036 from 5.2 mmtpa in 2017. In response, it plans to double its annual regasification capacity to 20 mmtpa from the current 10 mmtpa in the next 10 years. At the same time, state utility Electricity Generating Authority of Thailand (EGAT) is planning its own 5 mmtpa floating storage regasification unit (FSRU) in the Gulf of Thailand. The FSRU, expected to be ready by 2024, will be linked to Thailand’s existing gas pipeline network.

China’s demand for LNG imports reflects its policies to discourage coal burning for electricity. Wood Mackenzie forecasts that China’s demand could reach 330 billion cubic meters (Bnm³) by 2020 from 206 Bnm³ in 2016.

​​​​​​​Role of Natural Gas in Power Generation

The opportunity is in expanding LNG’s role to provide flexible power generation to balance the electricity grid in Southeast Asian countries.

As a feedstock, natural gas has many advantages. Compared to emissions from coal-fired generation, natural gas produces half as much carbon dioxide, less than a third as much nitrogen oxides and 1 percent as much sulfur oxides, according to the U.S. Environmental Protection Agency. In areas where air quality needs improvement, gas is a viable alternative.

Compared to coal and renewable energy, natural gas offers power providers the shortest startup time. The ability of gas-fired power stations to ramp-up more quickly than those using other feedstocks means they can be considered a viable baseload option for communities using power from renewable sources.

There are opportunities for microgrids to rely on gas-fired generation as the primary baseload power for integration with intermittent renewables. For example, there is an increased interest in using natural gas-fired reciprocating internal combustion engines (RICE) for microgrids. Because RICE power is quickly available on demand and can run on clean, low-cost gas, it is often the microgrid selection to backstop distributed generation.

The IEA suggested that LNG can be used in smaller scale projects in archipelagic countries, such as Indonesia and the Philippines, where it can replace diesel-based generation in some island communities. In addition to environmental improvements, converting to gas power can, in some cases, cut electricity costs in half.


Infrastructure Investments

To meet growing electricity demands, industry experts predict that Southeast Asia will become a net importer of gas by the mid-2020s.

The prediction has important implications for infrastructure development in the region. Increased investment in import infrastructure, such as receiving terminals, pipelines, power generation and other infrastructure that receive, distribute and use gas, is necessary to support the expanded use of natural gas. The receiving terminals will increase the flexibility of gas procurement as well as create sustainable LNG supplies.

In congested Southeast Asian cities where land acquisition is a challenge, floating solutions such as FSRU and FLNG could be feasible investment alternatives to onshore infrastructure.

FSRUs are less of an investment risk than onshore LNG terminals. If FSRUs are retrofitted from LNG vessels, the investment is even lower. The FSRU’s portability offers greater investment protection while addressing the lack of pipelines and terminal infrastructure. It also removes land acquisition issues.

FLNG applications are more flexible and can be deployed more quickly than onshore LNG import terminals. FLNG and FSRU projects effectively reduce issues of shoreline impacts, size and complexity considerations in development.


Grid Modernization

As plans for LNG import infrastructure advance, the region has the opportunity to reassess the role of gas power plants. One option would be to co-locate new infrastructure that offers a synergy between regasification terminals and gas turbine power stations by utilizing LNG’s “cold energy” to chill gas turbine inlet air. This makes both regasification and gas turbine power stations more efficient and cheaper to operate.

The combustion turbine’s inlet air provides the heat energy to vaporize the LNG using a glycol circulation loop connecting LNG vaporizers and coils in the combustion turbine air inlet ducts. This arrangement significantly increases power station output and efficiency.

Integrating LNG-to-power is complex. However, comprehensive project execution planning and collaboration with other stakeholders in the gas value chain can capture the necessary funding for LNG supply and import infrastructure to achieve maximum return on investments. At the same time, a transparent regulatory framework would give stakeholders confidence about investing in the industry, while supportive government policies that focus on improving energy security will contribute to the growth of natural gas.

As importers demand cheaper and more flexible terms, establishing regional markets would improve pricing transparency that could stabilize price disputes between buyers and sellers and support market growth. Stabilized prices can facilitate commitment to long-term contracts, which can, in turn, help developers attract new financing capacity. Supportive policies, such as carbon pricing, can serve to strengthen the business case for gas in power generation.

Regional integration of LNG infrastructures is another opportunity for development. The IEA has identified that better interconnection of natural gas supply networks, supported by flexible and transparent markets, can further enhance gas security in Southeast Asia. For Southeast Asia, solving the infrastructure gaps will help to facilitate deployment and support the growth of gas. Partnering companies with deep engineering, commercial and political experience would mitigate the risks associated with the complex integration of natural gas and electric projects needed to provide energy security.

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