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The macroeconomic, financial risks of dependence on imported LNG
The US dollar-dominated LNG charges expose consumer prices to macroeconomic impacts, mostly felt through inflation
ASIA PACIFIC
Emerging Asia is expected to be one of the largest growing markets for the demand for liquified natural gas (LNG), introduced to be the “bridge fuel” to reduce reliance on coal power and aid their clean energy transition, but there are risks on dependence on imported LNG, according to the Institute for Energy Economics and Financial Analysis (IEEFA).
In its analysis of the LNG-to-power proposed projects pipeline in seven countries, IEEFA said that around 62% of the proposed LNG import terminal capacity and 66% of gas-fired power capacity may not push through because of “fundamental project, country-level and financial market constraints.” It studied the projects in Vietnam, Thailand, the Philippines, Cambodia, Myanmar, Pakistan, and Bangladesh.
IEEFA identified the macroeconomic and financial risks of increasing dependence on imported LNG.
It identified commodity price volatility as a risk which “significantly impacts delivered gas and power prices.” Foreign exchange volatility is also a risk because the US dollar-dominated LNG charges “expose consumer prices to macroeconomic impacts, mostly felt through inflation.”
The increasing sustainable investing makes long-term LNG financing “unreliable” due to pressure for cross-border financiers to support decarbonisation goals
There is also a risk for higher power tariffs for end-users as expensive LNG imports can push final gas and power tariffs. There are also higher government subsidy burdens as government bodies in subsidised markets have to pay for fuel price fluctuation through additional national budget allocation.
The institution also noted that there is also limited project financing available for fossil gas assets.
It also cited the stranded asset risk for LNG-to-power investments because the volatility of global fuel prices and the penetration of low-cost renewables can limit the use of these assets.
“If gas producing countries in emerging Asia can see their way to revise currently unattractive production pricing formulas, renewed growth in domestic gas production can reduce or even eliminate the need for LNG import assets,” it said in a statement.
IEEFA also said that the imported fossil fuel lock-in may limit the entry of renewables. It also said there is declining economic competitiveness of domestic industries because higher fuel costs can raise industrial operating costs.
Fuel supply insecurity is also another risk as disruptions in the trade of LNG can result in gas shortages. The increasing sustainable investing also makes long-term LNG financing “unreliable” as there is pressure for cross-border financiers to support decarbonisation goals and targets and sustainable development.
Energy Finance Analyst Sam Reynolds said countries planning to grow their energy resources “must determine the most sustainable, reliable funding pathway for infrastructure growth,” citing the risks LNG-to-power projects may be subjected to and the highly volatile global LNG markets.
THE CHARTIST: ASIA TO BRING 103GW RE CAPACITY ADDITIONS IN 2022
Asia is expected to account for 103 gigawatts (GW), or 46% of the total new capacity in renewable energy this year, Rystad Energy reported.
Of this, China will account for 64GW, or 62% and 29% of total capacity gains in Asia and globally, respectively.
This is despite China’s move to phase out national subsidies for onshore wind and solar photovoltaic in the beginning of the year, the research firm noted.
At present, the country is also the leading developer of offshore wind with over 14GW of additional capacity in 2021 and 11.5GW estimated in 2022.
It is also seen as the largest contributor to new renewable energy capacity in 2022 with 40% of additions to be expected.
Globally, the new utility scale renewables capacity is expected to break record in 2022 as it is projected to reach an all-time high of 220GW as investments are estimated at over $300b for solar and wind power.
Of this, 195GW are already underway, whilst the remaining 12% are still in various stages of development. Solar will account for 46% of the total capacity already under construction, whilst wind accounts for 34%.
Rystad Energy noted that almost 50% of the capacity under construction are in Asia, particularly China and India.
“Despite record capacity additions in 2022, the outlook is not all positive. Projects expected to start construction this year will face challenging economics, delays and even cancellation risks,” Gero Farruggio, head of renewables research with Rystad Energy, said.
He noted the first sign of this challenge is seen in the projected fall in large-scale renewable capacity breaking ground in 2022 against 2021.
Global renewables capacity additions by year, region and type
