After a subdued start to 2024, which saw spot liquefied natural gas (LNG) prices weaken across Asia's largest demand centres, India's Petronet's striking of the world's largest-ever LNG contract extension on 6 February has reasserted regional buyers' appetite for long-term supply contracts.
State-owned Petronet's extending by 20 years of its contract for 7.5 MTPA of gas from QatarEnergy, starting in 2028, attests to the abiding strength of Asian LNG demand. Those cargoes will help meet India's ambition to more than double the proportion of natural gas in its energy mix to 15% by 2030, when demand is on course to reach 30 MTPA.
The availability of such affordable LNG contracts presents an opportunity for buyers to lock in terms that are an improvement on what they have been paying until now.
Petronet's QatarEnergy extension is reported to be about 12.2% of the prevailing Brent oil price, plus a fixed charge of around US$0.30 per million British thermal units (mmBtu), according to traders cited by Bloomberg. Its existing deal that started in 1999 is priced at 12.67% of Brent with a fixed charge of US$0.52/mmBtu.
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This is not just a matter of opportunistic buying from a seasoned negotiator. Asian LNG importers across the board are limbering up for more sustained purchasing, given the bullish demand outlook.
The region remains the world's keenest buyer of LNG cargoes. Three countries - Japan, China, and South Korea - accounted for half of the world's total LNG imports in 2022, notes the International Energy Forum (IEF).
Regional gas dependence isn't about to dissipate anytime soon. BMI sees India contributing about 20% of the region's additional natural gas consumption between 2023 and 2033. Demand-side fundamentals in India are set to remain bullish, supported by power and industrial sectors.
Asia's industrial sector will steadily increase its LNG usage, with LNG replacing coal and helping to reduce India's power sector emissions by about 50%, reckons Wood Mackenzie.
Other South Asian buyers are of a similar bent to India. Bangladesh's Petrobangla signed contracts with Excelerate Energy and Summit Group at the end of January for the supply of up to 1.5 MTPA of LNG over 15 years, starting in 2026.
The state-held Bangladeshi company has racked up four long-term LNG contracts in the space of a year, underscoring its preference for long-term deals over spot market purchases.
This is despite Asian spot LNG prices remaining below US$10/mmBtu for four weeks running in early February.
Indeed, newer market entrants' favouring of supply security over short-term deals that exploit the softness of spot prices may be significant. These LNG importers' readiness to curb their exposure to spot markets will ramp up competition for long-term LNG supply contracts, which could be good news for suppliers in Australia, the US, and the Middle East.
Southeast Asia is vying to be the region's LNG import hotspot, with demand poised to double by the end of the decade, driven by Singapore, Vietnam, and the Philippines.
The IEF sees the Southeast Asia LNG market more than doubling to 40 MTPA of imports by 2030 as these countries look to meet growing energy demand and replace depleted domestic gas fields.
Vietnam's strategic energy plan sees LNG imports rising from zero to almost 15% of the country's energy needs by 2030, with plans to build 15 new gas-fired power plants supported by two more LNG terminals by 2035. According to the IEF, the Southeast Asian economy's frequent electricity blackouts have hurt its reputation as a manufacturing hub. LNG fits the bill in providing backstop power grid stability.
These relative newcomers' burgeoning LNG demand outlooks will still be shaded by the substantial import volumes emanating from regional heavyweights such as China.
The latter is a key shaper of long-term demand, with BMI seeing it contributing close to 48% of incremental gas consumption in Asia.
Across the region, BMI anticipates LNG imports increasing further to 448 BCM in 2033 from 324 BCM in 2023, with a large share of incremental imports stemming from India and China.
Despite the bullish consensus on the long-term LNG demand outlook in Asia, obstacles will have to be navigated.
President Joe Biden's proposal in late January to temporarily pause the approval of new US LNG exports could trigger higher prices, wiping out the affordability advantage on which much of Asia's future LNG demand growth is predicated.
As Wood Mackenzie warns, the pause may result in Asian governments potentially scaling back strategies to use gas as a transitional fuel to replace more polluting coal, as they simultaneously ramp up investments in renewables.
Against that, the expected advent of an LNG supply overhang later in the decade could help keep prices in a sweet spot for Asian buyers, cementing the region's affinity with a fuel that has repeatedly proved its ability to see off the occasional market wrinkle.
