Asian nations should pivot from reliance upon LNG gas toward renewable sources to protect themselves from record energy price volatility, geopolitical supply shocks and to deliver on net zero goals, a new report by Carbon Tracker said on Friday.
Offshore wind sector growth potential in Asia is huge. Large coastlines and territorial water areas mean the nations are extremely well-positioned to become world leaders in offshore wind development.
Senior Analyst Jonathan Sims, author of ‘Stop Fuelling Uncertainty’ report, said: “Building new large-scale gas units in Japan, South Korea and Vietnam will unnecessarily raise these nations’ dependence on the increasingly volatile global LNG market at a time when the risks of gas market exposure have never been higher.
“Planning a power system centred around lower cost renewables with battery storage not only represents the best option in terms of climate target progress, but also in cutting exposure to commodity price volatility and stranding risk.”
Asia has been the primary driver of LNG demand, accounting for 95 per cent of projected growth in 2020-22.
This research focuses on Japan and South Korea — representing around one third of global LNG demand — and Vietnam, which has the largest regional pipeline of new gas power infrastructure.
Japan, Vietnam and South Korea have all declared national intentions to achieve net-zero emissions by 2050, but continue to plan for a future in which unabated gas-fired units have a central role within their power systems.
Instead, planning a power system centred around renewables with battery storage will minimise exposure to commodity price risk, can be developed at lower cost than new gas, and will prevent billions of dollars of LNG infrastructure investment from stranding.
‘Stop Fuelling Uncertainty’ urges policy makers to grasp the immense opportunities available in the lower cost and lower risk renewables sector and highlights the extreme risks to investors of long-term gas plant investment at this juncture.
Wedding the energy grid to volatile and high gas prices locks users into a worst-case outcome, when compared to lower cost and cleaner renewables.
Opportunities for renewables in Japan, South Korea and Vietnam are vast and more cost competitive than gas.
New solar and onshore wind power developments in Japan, South Korea and Vietnam are either already cheaper, or will become cheaper overall investments than new gas units by 2025.
Given typical planning and construction timeframes of at least four years for new gas, any units that move ahead to development could face constrained running hours from day one amid strong competition from lower cost renewables.
The Russian invasion of Ukraine has destroyed the notion that gas is a reliable transition ‘bridge’ fuel. Since the war began, the world has seen global energy markets disrupted, record price volatility, with growing concerns of a deep energy supply crisis with calls for energy demand curbs not witnessed since the 1970s.
Fuel costs are inevitably the largest single cost item for gas-fired power stations. Gas prices are subject to international commodity market movements, which can result in significant variations in cost from year to year.
Such price moves can be the difference between gas-fired power generation capacity being competitive to operate or not.
Volatile fuel prices, which ultimately lead to high consumer electricity prices, should make the continued investment case for such assets even less attractive when compared with renewables which require near-zero marginal costs for operation.
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