View all newsletters
Receive our newsletter - data, insights and analysis delivered to you
  1. Sectors
  2. Power
6 September 2022

Exclusive: The $500bn Asia gas trap

Asian countries are investing at least $490bn in new gas infrastructure, in plans that are laden with climate and financial risk.

By Nick Ferris

Countries across Asia are investing in $500bn of new gas infrastructure, reveals an investigation by Energy Monitor. The figure is based on a new analysis of exclusive datasets provided by GlobalData, Energy Monitor’s parent company.

The investment will lock countries into polluting power generation, heating and industrial activities for decades to come. This future is incompatible with net zero by 2050 and limiting global warming to 1.5°C. 

Workers at an LNG storage facility in Xiangyang, Hubei Province of China. (Photo by Wang Hu/Visual China Group via Getty Images)

It also risks forcing consumers to pay inflated prices for energy – as current soaring energy prices in Europe demonstrate – as opposed to cheaper energy from low-cost renewables like solar and wind.

In all, the data shows that $186bn is being spent on new gas-fired power plants, $112bn on developing new gas fields, $81bn on new gas pipelines, $77bn on new regasification plants, $13bn on new liquefaction plants, $8bn on new storage facilities, and $4bn on new gas-processing facilities. These figures include facilities under construction, as well as those that are in the process of permitting, or have simply been announced.

“Gas used to be a regional fuel that was delivered nearby by pipelines, but it is clear that gas is going global,” says Deborah Gordon, senior principal at the think tank RMI. “Gas is becoming akin to oil: with arbitrage, geopolitical pressures, weaponisation and increasing price volatility.” 

“The findings here demonstrate just how big the bubble for natural gas and LNG in Asia is getting,” adds Sam Reynolds, from the Institute for Energy Economics and Financial Analysis (IEEFA). 

“Emerging Asian countries in South and South East Asia are expected to be the main drivers of natural gas and LNG (liquified natural gas) demand growth over the next two decades, and the pipeline of projects is growing rapidly due to expectations about the region’s population and economic growth, along with electrification targets and declining domestic gas resources.”

The data in Energy Monitor’s investigation only looks at countries in South Asia, East Asia and South East Asia. Countries in the former USSR and the Middle East are not included. It also excludes projects that are already partially active or undergoing extensions or rehabilitation. It is also important to acknowledge that large number of projects in the databases, particularly those at an early point of development, are missing CAPEX estimates.

Upstream data also only looks at the capital expenditure (capex) of gas fields that have not yet been developed, ignoring any future costs involved in gas fields that have already begun producing gas. It also ignores oil fields that may also contain a smaller volume of gas, and it ignores discovered or unlicensed fields that may yet begin producing gas in the coming years.

A final caveat is that the figures only include domestic investment in natural gas, and do not look at money invested by these countries in gas overseas; for example, via development finance institutions or export credit agencies. These investments would significantly increase the final investment figure. 

The risks of gas in Asia

Gas used to be considered a cleaner fossil fuel than alternatives, producing around half the emissions of coal when burnt. However, the remaining global carbon budget is so limited for avoiding catastrophic climate change that scientists now stress there is little scope for gas to be used as a 'transition fuel'.

It is also increasingly understood that gas is not a 'cleaner' fossil alternative after all, with different gas exporters producing wide-ranging upstream methane emissions during gas extraction and transportation. 

Methane is a gas 86 times more powerful than carbon dioxide as a global warming pollutant over 20 years, and while many of the Asian countries featured in this story were among the 120 that signed the Global Methane Pledge at COP26, there is “no way they can meet this goal if they build out their natural gas systems as shown”, says Gordon. 

Recent headwinds in global gas markets mean that some of the mooted gas projects in Asia may not see the light of day. Countries including Bangladesh and the Philippines have shelved LNG projects in recent months as a result of high costs and unreliability of supply. Such moves only emphasise the risks attached to remaining gas and LNG projects should price spikes and volatility continue over the next several years. 

“By maintaining or increasing their exposure to imported LNG and other fossil fuels, emerging Asian countries are essentially strapping their economies more tightly into this commodity price roller coaster,” says Reynolds. 

[Keep up with Energy Monitor: Subscribe to our weekly newsletter]

There is also the economic risk attached to projects being incompatible with climate targets, which may ultimately force projects to close earlier than their developers currently intend. An April 2022 report from the think tank Carbon Tracker suggested that new, large-scale gas units in Japan, South Korea and Vietnam appear “totally incompatible with a net-zero emissions by 2050 pathway”. 

Data from GlobalData shows that hundreds of gas-fired power plants are currently due to be closed after 2050. If countries are to keep their net-zero pledges, many of these plants would likely have to be shut before that date, posing economic risks to their backers. 

For Mike Coffin at Carbon Tracker, the findings also expose how governments have failed to adapt plans rapidly enough to what makes the most economic sense in the current energy market. “Governments also should not use public funds to continue to subsidise an industry in long-term decline but instead to provide cheap, secure and cleaner energy through renewables-based energy systems,” he says. 

“The viability of all these [gas] investments remains to be seen… there are so many uncertainties,” Reynolds sums up. ”For example, will developing Asian countries be able to afford higher-priced LNG for long periods? Will project sponsors bring proposals to completion in difficult regulatory environments? Will gas projects withstand price competition from low-cost, domestic renewable energy?”

Lisa Fischer, from the think tank E3G, believes the examples of Bangladesh and the Philippines shows there is some willingness among importers to shift energy strategies away from gas to avoid the financial burden the fossil fuel is likely to bring. “A lot of these plans will likely not happen, but the lost time and resources spent on this distracts from the need for grid strengthening, energy efficiency and the build of renewables, which could happen more quickly,” she says. 

The real risk, though, is for exporters, says Fischer. In Asia, this largely means Brunei, Indonesia and Malaysia. Otherwise, it is the likes of the US, Qatar and African countries that are building LNG export capacity that may become obsolete

“There is a huge bubble building up,” she says. “Drilling now is risky because high prices will lead to a quicker peaking of global gas demand than anticipated. Anyone who isn’t competitive with the established players in the US and Qatar is unlikely to find stable markets.”

Topics in this article: , , , ,
NEWSLETTER Sign up Tick the boxes of the newsletters you would like to receive. Keep up with the global energy transition with one of our editors bringing you the best of our data-led news and analysis every Monday and Thursday.
I consent to GlobalData UK Limited collecting my details provided via this form in accordance with the Privacy Policy
SUBSCRIBED

THANK YOU

Thank you for subscribing to Energy Monitor