LNG price rally to spur switch to oil in Asia: Rystad Energy
04:00, 29 September 2021
Asia is set to boost oil demand by an average of 400,000 barrels a day (bpd) over the next two quarters as rallying liquefied natural gas (LNG) in Europe and Asia has widened the price gap for power plants to switch from gas to oil.
Steep carbon regulations and operational constraints limit Europe’s ability to burn oil in power plants, but Asia has more flexibility, said energy research firm Rystad Energy in a statement on Tuesday, 28 September.
“This is a significant increase for Asia when looking at its current oil-to-power use. From a global oil balance perspective too, this would be a significant shift, and it provides support to the current rally in oil prices,” says Claudio Galimberti, senior vice president on Rystad Energy’s oil markets team in the statement.
Idle capacity
Asia’s liquid-burning capacity for power generation has declined over the past 10 years, but there are still about 100 gigawatts (GW) generating capacity in operation, mostly in Japan, Taiwan, Indonesia, Bangladesh and Pakistan.
The continent’s current oil consumption for power generation fluctuates at around 900,000bpd. This leaves a monthly unused and available oil-burning capacity of more than 550,000bpd.
Looking at the potential uplift in demand of 550,000bpd, Japan would account for the lion’s share with more than 300,000bpd, the company said. Indonesia follows with 58,000bpd; Taiwan and Bangladesh with 39,000bpd each; and Pakistan with 33,000bpd.
Upside for oil demand
Rystad Energy said with Asian natural gas prices currently forecasted to shoot up and stay well above $20 per million British thermal unit (MMBtu) over the coming Northern Hemisphere winter, there was a clear upside for oil demand in this region.
“Unless the oil price were to increase even faster and cause the price spread to LNG to narrow,” it added.
North Asian LNG prices topped $30/MMBtu in a tightening market as China and other Asian countries stepped up purchases ahead of winter, ANZ Research wrote in Wednesday's note.
Energy prices rally
International benchmark Brent crude oil prices jumped to above $80/bbl on Tuesday (28 September), the first time in three years as demand recovered amid tight supply. West Texas Intermediate hit a more than two-months high at $76.67/bbl on Tuesday. Brent and WTI gave up their gains, retreating 1.47% and 1.50% respectively on Wednesday.
Liquid-burning power plant capacity is approximately 2.6% of the total installed capacity in Asia, but usually, actual power generation coming from liquids is lower, according to Rystad. This type of power plants typically have very low factors, both for economic and environmental reasons.
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