Asia’s vitality provide seems safe – at the same time as Europe falters

As Europe grapples with power shortages, Asia-Pacific’s electricity supply remains secure largely because the region still consumes large amounts of coal, data shows.

As LNG supplies in the region have been diverted to Europe, power generators in Asia not only have less access to LNG, but strong demand in Europe has forced them to forgo purchasing the more expensive LNG.

Europe is grappling with a gas shortage as Russia cuts supplies, forcing many countries into an energy crisis in the run-up to winter. The British National Grid has warned of possible power outages.

On Tuesday, the EU deflected attention from a proposed price cap on Russian gas as it unveiled new measures to combat high energy prices. Russia had previously said it would halt all fuel supplies to the EU if the bloc imposed these caps, which depress Russian revenues and commodity prices.

S&P Global chief energy strategist Atul Aryal said while the crisis in Europe and the war in Ukraine have pushed up the prices of fuels like oil and gas around the world, it hasn’t hurt energy production in Asia.

According to the International Energy Agency’s latest gas report, Asian spot or short-term LNG imports fell by 28% in the first eight months of the year compared to the same period last year. Overall, LNG imports fell by 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 downside is that Asia, which is increasing gas consumption, has stopped, at least for now.”

In contrast to Europe, which relies on gas for energy production, gas is less relevant for Asia. It makes up just 11% of its power mix, and imported LNG makes up a small portion of that, with most of the gas coming from domestic production, said Alex Whitworth, head of Asia-Pacific power and renewables research at Wood Mackenzie.

Coal takes up a larger portion of the mix, although it’s declining, Whitworth added. Coal’s share of power generation for the Asia-Pacific markets is more than 60%, he said.

Deploying renewable energy will take time and won’t allay safety concerns in the short term… so we’re more likely to see a push to increase fossil fuel supply and therefore reliance on those dirtier fuels.

Warren Patterson

ING economy

Regardless, Asia’s LNG imports have fallen due to high prices.

According to the International Energy Agency’s latest gas report, Asian spot or short-term LNG imports fell by 28% in the first eight months of the year compared to the same time last year. Overall, LNG imports fell by 7% year-on-year.

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

The agency said not only high prices deterred 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 greater use of coal 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 of Energy Economics and Financial Analysis.

The company used about 26% more coal in July this year than in the previous month, but that was still less than last year, data from IEEFA showed.

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

LNG imports in China — now the largest global LNG importer — fell the most, at 59%.

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It follows that Korea – which, like Japan, consumes more gas than other Asian markets – has had to compete to some extent like Europe for limited gas. However, they are safer than Europe due to the availability of domestic supplies, Whitworth added.

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

In general, tighter LNG supplies and higher prices mean some countries will have to rely on relatively “cheaper and dirtier fuels,” said Warren Patterson, head of commodity strategy at ING Economics, in a recent statement.

“One would expect that the environment of high fossil fuel prices would accelerate the green push by governments across Asia, especially given that a number of these economies are large net importers of energy,” Patterson said.

“However, the deployment of renewable energy clearly takes time and will not allay safety concerns in the short term.”

“As such, we’re more likely to see a push to increase the supply of fossil fuels and therefore the reliance on these dirtier fuels.”

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