As Europe grapples with possible energy shortages, Asia-Pacific energy supplies remain secure mainly because the region still uses a lot of coal, the data showed.
With liquefied natural gas supplies in the region shipped to Europe, Asian power generators not only have less access to LNG but have had to opt out of buying expensive LNG driven by strong demand in Europe.
Europe is suffering from gas shortages as Russia cuts its supply, forcing many countries to face energy shortages ahead of winter. The UK National Grid has warned of possible power cuts.
Earlier this week, the European Commission suggested that countries should put a price on gas. On Thursday, EU leaders gave political support to finalize the proposal.
Russia has previously said it would halt all oil deliveries to the EU if the bloc imposes the caps, which pressure Russian revenues and commodity prices.
S&P Global chief energy expert Atul Aryal said that while the crunch in Europe and the war in Ukraine have pushed up fuel prices like oil and gas around the world, it has not hurt energy production in Asia.
According to the latest gas report of the International Energy Agency, in the first eight months of the year, the Asian area or short-term LNG was down 28% compared to the same period last year. Total LNG sales were down 7% year-on-year.
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“In Asia, instead of using gas, countries are using coal because coal is available, domestic coal and it’s cheap,” Arya told CNBC.
“The downside is that Asia, which is growing in gas consumption, has stopped, at least for now.”
Unlike Europe which relies on gas for power generation, gas is less relevant in Asia. It only makes up 11% of its energy mix and imported LNG makes up a small part of that and most gas comes from domestic production, Wood Mackenzie head of Asia Pacific energy and renewables research Alex Whitworth said.
Coal takes up a large part of the mix, although it is falling, Whitworth added. The share of coal in power generation in Asia-Pacific markets is more than 60%, he said.
In contrast, Asian LNG sales declined due to higher 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 period last year. Total LNG sales were down 7% year-on-year.
Imports from China – now the world’s largest LNG importer – fell by a whopping 59%. The decline in LNG imports in Japan, Pakistan and India was 17%, 73% and 22% respectively, the IEA said.
The agency explained that it is not high prices that deter Chinese consumers, but also the country’s sluggish economy, low winter temperatures and strong domestic production of gas and coal.
These factors have created opportunities for more coal use in Asia, amid efforts to reduce fossil fuel consumption. For example, the Korea Electric Power Corporation has begun using more coal in recent months, according to the Center for Energy Economics and Financial Analysis.
The company used about 26% more coal in July this year compared to the previous month, but that was less than the volume used last year, data from IEEFA showed.
“KEPCO’s data shows that both coal-fired power and LNG power have fallen since May due to higher year-on-year prices. However, there is a clear month-on-month increase in coal-fired power generation,” IEEFA financial analyst Ghee Peh said.
LNG imports from China – now the world’s largest LNG importer – fell sharply by 59%.
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It follows that Korea – which, like Japan, uses more gas than other Asian markets – has to some extent, had to compete with less gas like Europe. But, because of the availability of local materials, they are safer than in Europe, added Whitworth.
In other words, Asia’s dependence on coal and less dependence on gas exports means it has high energy security.
In general, tight LNG supplies and high prices now mean some countries will have to rely on “cheap and dirty fuel,” ING Economics head of commodity strategy Warren Patterson said in a recent note.
“One would expect that the high fossil fuel price situation would accelerate the green push of governments across Asia, especially given that many of these economies are large energy exporters,” Patterson said.
“However, obviously, the deployment of updated materials takes time and will not alleviate security concerns in the short term.”
“Therefore, we may see more of a push to increase the supply of fossil fuels and therefore reliance on these dirty fuels.”
Correction: This story has been updated to correctly reflect that the European Commission raised the price of gas, and EU leaders later gave political support to it. It was also updated to clarify that Europe is now facing a potential energy shortage.