More U.S. LNG in Asia would come at environmental cost

Developing Asian countries have been trying to pivot away from LNG development in favour of more renewable energy to help reach their respective decarbonisation goals. That goal, however, might be more difficult than first thought. A new Wood Mackenzie study found that the region will need even more LNG — mostly U.S. LNG — to offset coal-fired power plants and corresponding emissions.

Modelling power generation and the implications for gas demand across Asia through 2050, the study found that more U.S. LNG was “essential to balancing global markets and providing emerging Asia with an affordable and available alternative to high-emitting coal that is currently the region’s dominant energy source.”

Fossil fuels, led by coal, the world’s dirtiest energy source, has met nearly 80 percent of Southeast Asia’s increasing energy demand since 2010, according to data from the International Energy Agency (IEA).

LNG demand in Asia

Wood Mackenzie also projected that LNG demand in Asia will grow from 270 million tons per annum (mtpa) in 2024 to 510 mtpa in 2050, “fuelling economic and population growth across emerging economies.” It added that “without the resources to be energy self-sufficient, Asia must still rely on LNG imports.”

The report examines two different scenarios. The first includes the U.S. lifting its current pause on new LNG export approvals to non-free trade agreement countries by early 2025. Lifting the pause is needed in order to meet a larger share of LNG demand in both Asia and globally. The second scenario examines the pause remaining in place longer-term.

If the pause is lifted and approvals resume, then U.S. LNG is expected to make up at least a third of global supply by 2035, the report found. However, if the halt remains in place and planned and proposed U.S. LNG projects aren’t developed, “there is a risk that LNG development in other regions will fail to keep pace with anticipated growth.”

The Wood Mackenzie study comes at a pivotal time for U.S. LNG development. In January, in what many considered a politically motivated move, the Biden Administration instructed the Department of Energy (DOE) to pause reviews of new LNG export applications to countries that didn’t have free trade agreements in place with the U.S.  In July, however, a federal judge sided with Louisiana and 16 other states that had sued the Biden Administration’s blockage of permits for LNG terminals.

Yet, the Biden Administration fired back. In early November, only days before the presidential election, Biden asked a federal appeals court to set aside the July order for the DOE to lift its pause on issuing LNG export approvals. It argued that a challenge by Republican-led states against the permitting suspension should also be dismissed for lack of jurisdiction. An S&P Global report said that the ruling was unlikely to kickstart DOE approvals on its own.

Trump and LNG

However, after Trump takes office on January 20th, all LNG roadblocks are expected to be lifted. During the presidential campaign, he promised to remove current restrictions on U.S. fossil fuel development, including fast tracking new LNG projects and export facilities. That promise could be forthcoming sooner than expected.

On November 26th, Reuters reported that Trump’s transition team was already putting together a wide-ranging energy package that would approve permits for new LNG projects. The changes would take place within days of Trump taking office. Currently, there are five LNG export projects that have already been approved by the Federal Energy Regulatory Commission, but also need DOE approval.

According to Goldman Sachs, U.S. LNG exports — including output from the five projects that have been paused — are on-track to more than double by 2030 to 189 million mtpa, increasing its share of global LNG supply to 31 percent from 22 percent currently.

Environmental cost

However, while more U.S. LNG seems like the right fit for Asian energy markets by providing stable gas supply, especially countries still overly-reliant on coal-fired power production, it would come at an environmental cost.

The Wood Mackenzie report maintains that gas is the ideal transition fuel that supports greenhouse gas emissions reduction, alongside investment in renewables. However, the case against more LNG development has already been made not only by the IEA, but other analysts, NGOs and environmental groups.

LNG still emits at least 50 percent of the CO2 as does coal, while also having methane leakage problems across the entire gas value chain. Recent research indicates that LNG has a worse climate impact than coal, due to high methane emissions across the supply chain.

Environmentalists also point to several studies indicating that renewable energy projects are now less expensive to build than their fossil fuel counterparts. As such, they ask: why develop more LNG projects when renewables are the cheaper and cleaner alternative?

Anticipating such criticism, the Wood Mackenzie report offered justification for its modelling. “Rather than starting at net zero and working backwards to provide an unrealistic picture of the energy sources Asia will use over the next 25 years, Wood Mackenzie has carefully analysed individual countries to project their most likely energy pathways, as they strive to reduce greenhouse gas emissions,” it said.

“The rollout of renewable energy in Asia is a complex undertaking and we’ve already seen countries having to cut back on renewables targets. Natural gas and LNG provide an opportunity to reduce power-related emissions and coal use, while also ensuring energy security,” the report added.

The opportunity for the U.S. to fill more of the region’s gas needs, however, is not a given. The Wood Mackenzie report added that energy decision-makers around Asia want to know if the U.S. will be a reliable long-term supplier of LNG as they seek to replace coal in power generation.

“If it’s not from the U.S. or Australia, then this study shows gas would need to be sourced from less cost-competitive projects around the world and the likely outcome would be higher LNG prices than what many South Asian and Southeast Asian nations can afford,” it said.