South Asia exposed to $107bn LNG bet amid Iran war chaos: analysts

The energy shocks caused by the Iran war demonstrate that even in a relatively balanced LNG market, disruptions to shipping routes and production can quickly push up prices and tighten access, highlighting the economic and energy-security risks for regions like South Asia, analysts have warned.

Even before the Middle East conflict began, global LNG markets were on a “straightforward path” to oversupply with new U.S. and Qatari production ramping up through the end of the decade, which was already fuelling optimistic demand growth forecasts for Southern Asia, analysts at Global Energy Monitor (GEM) said in a new briefing published on Wednesday.

But the Iran war has laid bare “just how quickly a growth market can sway into an affordability crisis and up the potential likelihood of project shelving or stalling, GEM said in a press release accompanying the briefing.

LNG terminals and gas pipelines under development in the South Asia region total US$107 billion in potential investment, they said. And now Southern Asia’s major gas importers — India, Bangladesh, and Pakistan — are likely to encounter barriers to LNG growth even beyond the ongoing conflict, including high fuel costs and high rates of failure among prospective LNG import projects, they warned.

Oil prices topped $100 a barrel again on Thursday as Iran stepped up its attacks on energy infrastructure around the Middle East, with two oils tankers in an Iraqi port reportedly on fire after being hit by an Iranian drone strike. Three other ships had been struck in the Gulf just hours earlier, Reuters reported.

Investor concerns around a supply crunch had already pushed Brent crude to above $100 a barrel — its highest level in four years — last weekend, triggering a stock market sell-off. Brent crude jumped by as much as 29% to $119.50 a barrel in early trading on Monday.

On Wednesday, the Paris-based International Energy Agency ordered the largest release of government oil reserves in its history, in an attempt to tranquillise oil markets after the price shock triggered by the Middle East conflict.

Renewables solutions

Bangladesh and Pakistan each have enough LNG import capacity in development to roughly double existing capacity, while India is pursuing the world’s second-largest LNG terminal capacity expansion and the third-largest gas pipeline buildout, GEM said. Yet already over the last decade, these three countries have shelved or cancelled 2–3 times as much proposed LNG import capacity as they have brought online, it added.

Southern Asia accounts for 17% of all LNG import capacity in development — that’s to say, 110.7 million tonnes per annum — and 17% of all gas pipelines by length (as in, 34,146 km), with the bulk of these projects in India, the research showed.

Increased dependence on LNG imports is an economic and energy security risk for all three countries, GEM warned.

“At the same time, renewable power is already outcompeting gas in India and Pakistan’s power sectors, and alternative solutions like green hydrogen can wean the region off of relying on gas imports for industry,” it added.

Solar generation in Pakistan has more than tripled in three years, while India is on track to meet over 40% of electricity demand with renewables by 2030, GEM said.

In addition, energy storage solutions are “improving, making inroads in Asia, and can offer grid flexibility eroding gas’ assumed role in peaking and balancing,” the analysis highlighted.

Robert Rozansky, a Global LNG Analyst at Global Energy Monitor, commented: “We’ve seen this story before, and South Asian economies that import LNG will struggle with these price shocks.”

“It’s a reminder of the risks of building new gas infrastructure, and that domestic alternatives like renewable power are more affordable and reliable in the long run,” he added.

East Asia 

Around 20% of the world’s oil and LNG passes through the shipping lanes of the Strait of Hormuz, which is just two miles wide.

Four Asian countries — China, India, Japan and South Korea — account for 75% of oil and 59% of LNG flows through the Strait.

Of these, Japan and South Korea are the most vulnerable to supply shocks, sourcing 87% and 81% of their energy from fossil fuel imports, researchers at Zero Carbon Analytics (ZCA) said in a recent briefing.

A blockade of the Strait of Hormuz could push oil prices up to US$130 per barrel, ZCA warned, matching the all-time high seen during the 2007-2008 oil shock. Iraq’s Deputy Prime Minister has warned prices could reach as much as US$300 per barrel.

“Japan, as well as other oil and gas importing countries, can reduce their vulnerability to major supply shocks by investing in renewable generation and electrifying their economies,” according to the research group.

Europe has shown “how quickly countries can reduce their reliance on fossil fuels, reducing gas imports by 18% between 2022 and 2024,” they added.

Replacing fossil fuels with renewables can also save fuel costs, experts say. “In Thailand’s case, looking at the projections by 2037, expanding solar and battery capacity could further unlock $1.8 billion savings from the fuel cost from gas,” said Dinita Setyawati, Senior Energy Analyst for Asia at Ember.

“If this oil and gas powered volatility keeps going on for a prolonged period of time, there might be a widening of disparity between the more developed Asia and emerging economies in the region,” she warned in a webinar this week.

“So renewables, grids, and storage could be the Holy Trinity solutions for the energy dilemma not only for ASEAN, but also for the whole Asia region,” she added.

The World Bank has already identified a lot of wind corridors in the Philippines, putting potential offshore wind capacity at 60 gigawatts all over the country, said Gaspar Escobar Jr, grid modernisation advisor at the Institute for Climate and Sustainable Cities. 

“That would power not only the whole country, we can also become an exporter of power to our neighbour ASEAN countries,” he added.

(Writing by Sophie Davies)