Asia’s increased appetite for natural gas ranks as one of the most important global energy stories of the past 10 years, and one of the most often overlooked. It appears likely to drive Asian exploration and energy trading for the near future.
This demand trend is a major reason offshore drillers in Asia are targeting gas prospects, particularly in deeper waters.
And it’s one reason that the Offshore Technology Conference Asia will feature the first-day session, “Growing Demand for Offshore Gas,” when it opens in Kuala Lumpur in March, with several other sessions focused on the energy transition.
Angus Rodger, research director of Asia Pacific for energy research firm Wood Mackenzie, identified several potentially high-impact projects to watch in the region in 2022, including:
- Harbour Energy’s Timpan-1 well offshore Indonesia
- The Repsol Rencong-1X deepwater wildcat off northern Sumatra
- The Western Gas Sasanof-1 exploration well on Australia’s North West Shelf
- TotalEnergies’ deepwater Tepat North-1 well offshore Sabah, Malaysia.
In addition, In February, Maersk Drilling announced that it had committed a rig to drill the Layang-Layang deepwater exploration prospect in East Malaysia for Petronas.
Malaysian Borneo has become a hotspot for offshore gas exploration. Earlier this year, Petronas claimed another significant gas discovery offshore Sarawack, reporting its Hadrah-1 well had found an approximately 656-foot-thick sequence of high-quality sandstone and carbonate reservoirs.
In January, Petronas announced it will offer 14 exploration blocks, six clusters of “discovered resource opportunities” and one cluster of late-life assets in its 2022 Malaysia bid round.
The exploration blocks include prolific geological provinces within the Malay, Sabah and Sarawak basins, it said. Most contain existing oil and/or gas discoveries, while the DRO clusters are mostly in shallow water near existing production infrastructure.
Emerging Asia
Emerging Asia has led the increase in gas demand, particularly China and other countries outside the Organization for Economic Co-operation and Development. Last year, the U.S. Energy Information Administration predicted that non-OECD countries in Asia will collectively become the world’s largest importers of natural gas by 2050.
“We project that continued economic growth in non-OECD Asia, led primarily by China and India, will more than double net imports of natural gas into the region by 2050,” the EIA noted.
“To meet the natural gas needs of these growing economies, we project that global natural gas production will increase steadily along with exports from the three largest natural gas producers: the United States, Russia and the Middle East,” it added.
Some other forecasts predict that Asia’s rapid growth in gas demand will slow after 2020-35 but then continue to rise more slowly for years, in part because of coal-to-gas switching and other effects of the energy transition.
China’s Growing Appetite for Gas
Just 15 years ago, China produced almost as much gas as it consumed. Its domestic production has increased significantly since then, but demand has surged, making China one of the fastest growing importers of natural gas.
According to S&P Global Platts, China’s natural gas pipeline imports reached a record of 4.02 million metric tons in December, when it also imported 7.63 million metric tons of liquefied natural gas. Average prices were $6.15 per million British thermal units for pipeline gas and an estimated average of $18.93/MMBtu for LNG, the service reported.
In an opinion outlook, Miaoru Huang, research director of APAC gas and LNG for Wood Mackenzie in Beijing, projected that China’s gas demand could reach around 660 billion cubic meters by 2050, growing at an average 5.5 percent a year to 2030.
“There are many reasons to believe gas demand still has vast room to expand above current levels. Natural gas fits into China’s strategies to diversify the coal-dominated energy mix, improve air quality and pursue low-carbon development,” she said.
“To meet its rising demand, China has been boosting domestic production, debottlenecking infrastructure, diversifying import sources and introducing market-oriented reforms,” she added.
Chinese national oil company Sinopec expects China’s natural gas demand to reach 395 billion cubic meters this year, a rise of 7 percent over 2021, S&P Global reported.
Meeting Changing Gas Demand
While gas consumption will continue to increase in emerging Asia, Japan will see a 25-percent decline this decade and South Korea will experience a demand peak in the mid-2020s, the International Energy Agency projected in its most recent World Energy Outlook.
In China and South Korea, higher gas consumption will largely be used to replace more polluting fuels, the IEA noted. Industry will account for nearly 40 percent of overall demand growth to 2030, led by increases for light manufacturing in China and India, and from the chemical sub-sector in China.
Spotty exploration success and difficulties in financing and carrying out production projects have slowed Asia’s efforts to meet its own gas-demand needs. China and some other countries have introduced fiscal and regulatory reforms to encourage gas development.
In a bright spot, Eni started gas production from its Merakes project off the coast of Indonesia last year. Its five deepwater subsea wells will guarantee a production capacity of 450 million standard cubic feet of gas per day (85,000 barrels of oil equivalent/day), the company said.
But non-OECD Asia faces a future of increasing gas imports, driven by demand for LNG. The trend became a major energy news story in recent months, as Europe’s energy shortage and need for additional natural gas led to direct competition with Asia for LNG supply.
Market forces caused Asian LNG prices to spike in January, just as they had a year earlier, and average February swap prices for LNG cargos in East Asia rose to almost $25/MMBtu, Bloomberg Finance reported.
That supply situation underlined Asia’s need to bolster production efforts and increase sources of regional natural gas supply – including through the drill bit offshore.
“More new discoveries and developments are needed to slow the rising rate of LNG dependency. But if that fails to happen, and gas output falls faster than expected, even more imported LNG will be needed – up to 240 million tonnes per year more by our estimates,” Rodger noted.
“Taking southeast Asia as an example, if exploration ceases to contribute, regional reliance on imported LNG will jump from 61 percent to 83 percent by 2035,” he said.