Asia Pacific Energy Assembly: Day 2 Takeaways

Day Two saw the conversation move toward how the region will approach the developing role of natural gas and LNG in the energy transition, beginning with a keynote address from Wood Mackenzie’s Head of Asia Pacific, Gavin Thompson. Following Wood Mackenzie's keynote, the day's session would hear from representatives from the likes of: China GasCASS, Aon Credit Solutions, Oilchem S.A., Addleshaw Goddard, Advisian, Sinosure, BlackRock, ICBC, Texas LNG, Oil Search Limited, ExxonMobil, Herbert Smith Freehills LLP, ANZ Bank, Beijing Gas Group Co. Ltd., TOTAL, Lion Energy, Perusahaan Gas Negara (PGN), ERCE Energy, JAPEX, KUFPEC, InterContinental Energy, International Monetary Fund, Clifford Chance, Sumitomo Mitsui Banking Corporation, Energy Estate and our Ministerial Keynote from India's Directorate General of Hydrocarbons (DGH).

• Gas & LNG Keynote – All Eyes On Gas & LNG: How Asia Changed The LNG Market In The Space Of A Year
  • Gavin Thompson – Wood Mackenzie

A year in which the world turned upside-down, the successive oil and gas price shocks has led to a shake-up of the international oil and gas markets – with the Asia Pacific region emerging as the likely beneficiaries of an increased appetite for natural gas and LNG.

With future demand of gas expected to double for the region’s largest industrial players, the Asian market is preparing to serve and profit from that growing market. Of course, there is still concern about how the US-China LNG trading environment will look like, the Biden administration may have to compromise on his Green New Deal in order to maximize the United State’s position as Chinese LNG demand grows.

Natural gas and LNG must be seen as a ‘transitionary fuel’ that can break and replace the dominance of coal and oil on the international power generation markets. Natural gas itself has been highly successful in replacing coal and reducing US emissions as a result.

Wood Mackenzine’s Gavin Thompson has stood out for his foresight and expertise in regards to the Asia Pacific energy market, and this presentation of his market outlook provides a brilliant analysis of where the market may be headed.

• LNG Pricing Trends & Appetite For Long Term Contracting vis-à-vis Competitive Spot Markets
  • Jiang Yong · China GasCASS (China Academy of Social Science)
  • James Ponsford · Aon Credit Solutions
  • Arthur Jiantao Yan · Oilchem S.A.
  • Vivien Yang · Addleshaw Goddard

Beginning by looking at the Chinese movements in the LNG market, it becomes clear that the steep growth in LNG demand will have exceptional affects on the international market, both in consideration of long-term prices and short-term spot pricing. As the market grows there will be a stabilization of prices, with the 2021 price fluctuations being an outlier but a necessary catalyst will help ignite the sector.

Central to this is the anticipated ‘liberalisation’ of China’s LNG market, wherein the state is developing a nationwide pipeline network that can provide more equitable access to energy for its citizens. In addition, it benefits the replacement of coal-thermal power generation.

All panelists were quite positive about the LNG price outlook in Asia, particularly given the expected role on LNG in the energy transition. The Asian trading sector has been hit by a degree of scandal over the last 12 months, and this will affect regional oil and gas prices. However, the overriding factor is China’s growing presence in the market and the formation of Pipeline China to expand LNG imports and grow the domestic market.

• Bankable LNG Projects & Demand Creation Strategies
  • Craig Henderson · Advisian
  • Zhang Zhibin · Sinosure
  • Christian Synetos · Blackrock
  • Liu (William) Wei · ICBC
  • Vivek Chandra · Texas LNG
  • Diego Fettweis · Oil Search Limited

As LNG rises into the mainstream, there has been talk of how to best create value for a sector that has had its own emissions and environmental problems to deal with. However, there has been a great effort to reduce carbon intensity in gas flaring and the production processes, creating a competitive advantage against oil that once did not exist.

For many, natural gas has emerged as the go-to fuel of the transition – and this is especially true for the Asian market; China, Japan, Malaysia and South Korea (among others) all intend to rapidly ramp up supply to meet the demand coming over the next 10-30 years.

Our panelists felt that to acquire the necessary finance and investment, it was important to develop the ESG credentials and exhibit efforts at lowering emissions. For the institutional investors, they were exploring how gas can be monetized through power generation and shipping, both highly carbon intensive sectors.

The expectation is that demand growth for LNG will boom, and those who are willing to provide capital to ESG-aligned projects will reap the rewards in the coming years, as the ESG squeeze takes hold.

• Decarbonisation of Gas & LNG in The Energy Transition
  • Tze San Koh · ExxonMobil
  • Irina Akentjeva · Herbert Smith Freehills LLP
  • Elliot Slocombe · ANZ Bank
  • Bai Jun · Beijing Gas Group Co. Ltd.
  • Denis Bonhomme · TOTAL

The role of gas in the energy transition has been questioned by many, but widely accepted as the best current option for a swift displacement of higher carbon fuels. Coal especially is being moved away from in favour of gas power generation. Most companies are seeking to diversify their energy mix and increase the share of natural gas and LNG within their portfolios, alongside more carbon-neutral fuels.

Beyond this, direct mitigation on projects will set producers ahead of their competitors as there will be increasingly limited capital available to fossil fuel projects. The transition will rely on gas being the complimentary fuel to renewables, providing supply when and where there are lapses in consistency.

While the IOCs are rightly taking on much of the public pressure, behind-closed-doors they are also making the greatest inroads into decarbonisation technologies. As they become more pervasive, they will scale and reduce costs for E&P players down the value chain. To maximize these there will need to be a confluence of strong regulatory measures, an attractive carbon pricing market and incentives to take decarbonisation as far as possibly necessary.

• Indonesia Keynote – Lion’s Rare Co-ordinates, World Class Fiscal Terms and Very Attractive Geology: A Fresh Look at Indonesian Exploration Prospects
  • Thomas Soulsby · Lion Energy

Lion Energy has been at the forefront of energy development in Indonesia for many decades, steadily growing and building Indonesia’s energy capacity. And with the shift to natural gas, of which Indonesia has large reserves, it has become an opportune moment to expand the domestic energy sector. Indonesia’s geographic position centres the nation favourably to supply gas to across two oceans.

The country has repositioned itself fantastically over the past 20 years to become an economy with international ambitions, developing a stable oil and gas regime that attracts both domestic and international producers. The country’s abundance of natural resources dictates the government allow for their exploitation in order to create affordable and reliable energy for Indonesians. Lion Energy ‘s reputation and capabilities now allow the business to take appropriate advantage of the opportunities ahead of them.

• Commercialisation of Stranded Natural Gas Assets in South East Asia
  • Imam Mul Akhya · Perusahaan Gas Negara (PGN)
  • Adam Becis · ERCE Energy
  • Momoyo Yuki · Japan Petroleum Exploration Co (JAPEX)
  • David gurney · Kuwait Foreign Petroleum Exploration Company (KUFPEC)

The energy transition has created a problem with the increase in stranded natural gas assets in South East Asia. Typically, a stranded asset is one whose economic benefit dissipates prior to the expected timeline of the field – a problem that has emerged with a vengeance in-hand with the energy transition.

The natural gas reserves in South East Asia have become a burden for many IOCs and Majors who need to immediately reduce assets that have high emissions exposures. This in turn has led to an enticing M&A market for Asian NOCs who are seeking to pick up assets on the cheap, hoping to use their locality to extract the last value from these fields.

Natural gas is the fuel of choice for Asian states with demand expected to balloon over the coming years. Therefore, the supply of stranded natural gas assets could be playing into the hands of these regional industrial powerhouses, whose concern for ESG is not as pronounced as the West.

• Ministerial Keynote India – Investment Opportunities in Indian Exploration & Production Sector
  • C. Laxma Reddy · Directorate General of Hydrocarbons (DGH)

A liberalization of India’s hydrocarbon laws has been initiated in order to facilitate the growth of the E&P sector in India. The state believes that they have only scraped the tip of the iceberg, in terms of maximizing their domestic oil and gas reserves – there may still be significant undiscovered reserves waiting to be exploited.

While, many of India’s fields are sedimentary basins with some offshore fields, most of the deepwater reserves remain untapped. The Director-General pointed to the wide scope for exploitation of the country’s category 3 assets, 44% of which still needs to be appraised.

While India’s E&P sector is not as mature as many of their regional neighbours, the state has a growing demand and many of the industrial ingredients that will allow for a swift and ambitious reimagining of the marketplace. We eagerly await India’s growing presence in the sector.

• From LNG to Hydrogen – The Fuel Of The Future?
  • Alicia Eastman · InterContinental Energy
  • Nadia Kalic · Clifford Chance
  • Michael Lin Sheng · IFC/World Bank
  • Siddhartha Shrivastava · Sumitomo Mitsui Banking Corporation Singapore
  • Kevin Peakman · Energy Estate

LNG to Hydrogen is one of the more critical relationships being formed in the energy transition, as we seek to find the most efficient path to a net-zero society. While there is a consensus that green hydrogen will play a massive role in future energy procurement, the reality for now is that LNG and blue hydrogen provide the best alternate solution that will pave the path to lower GHG fuels.

One of the major concerns for those in hydrogen is; how best to safely transport H2 given its extreme volatility? Ammonia is the best available route for transoceanic deliveries, while former LNG pipelines are capable of being repurposed for hydrogen transmission.

One of the core concerns is how to ignite the green hydrogen sector, and what lessons can be learnt from the emergence of LNG over the past two decades. The consensus was that hydrogen must be scaled along a shorter timeline – that there will be greater ambition in growing the market than there initially was for LNG.