Bad LNG Investment for Pacific Rim Countries: Carbon Tracker

NEW DELHI: Asian countries should shift from reliance on LNG gas to renewable sources to hedge against record energy price volatility, geopolitical supply shocks and meet net zero targets, a new report from Carbon Tracker.

The growth potential of the offshore wind sector in Asia is huge. Extensive coastlines and territorial water areas mean nations are extremely well positioned to become world leaders in offshore wind development.

Lead analyst Jonathan Sims, author of the Stop Fueling Uncertainty report, said: “The construction of new large-scale gas units in Japan, South Korea and Vietnam will unnecessarily increase these countries’ dependence on increasingly volatile global LNG market at a time when the risk of gas market exposure has never been higher.

“Planning a lower-cost renewable-centric power system with battery storage not only represents the best option in terms of progress towards the climate goal, but also to reduce exposure to material price volatility. first and at the risk of failure.”

Asia was the main driver of LNG demand, accounting for 95% of forecast growth in 2020-22.

This research focuses on Japan and South Korea – which account for around a third of global LNG demand – and Vietnam, which has the largest regional pipeline of new gas-fired energy infrastructure.

Japan, Vietnam and South Korea have all declared their national intention to achieve net-zero emissions by 2050, but continue to plan for a future in which gas-fired units relentlessly play a central role in their electrical systems. .

Instead, planning a renewable-centric power system with battery storage will minimize exposure to commodity price risk, can be developed at a lower cost than new gas, and prevent billions of dollars worth of LNG infrastructure investments from running aground.

“Stop Fueling Uncertainty” urges policymakers to seize the immense opportunities available in the lower-cost, low-risk renewable energy sector and highlights the extreme risks for investors of long-term gas-fired power investments at this time. stadium.

Linking the energy grid to volatile and high gas prices locks in users in the worst case, compared to cheaper and cleaner renewables.

The opportunities for renewable energy in Japan, South Korea and Vietnam are vast and more competitive than gas.

New onshore solar and wind power developments in Japan, South Korea and Vietnam are either already cheaper or will become cheaper overall investments than new gas-fired units by 2025.

Given typical planning and construction timelines of at least four years for new gas, any units moving forward in development could face limited operating hours from day one amid strong energy competition. renewable at lower cost.

The Russian invasion of Ukraine has destroyed the idea that gas is a reliable transitional fuel. Since the start of the war, the world has seen global energy markets disrupted, record price volatility, with growing concerns about a deep energy supply crisis with calls for demand reductions. unprecedented energy since the 1970s.

Fuel costs are inevitably the biggest cost item for gas-fired power plants. Gas prices are subject to fluctuations in international commodity markets, which can result in significant cost fluctuations from year to year.

Such price movements can be the difference between gas-fired power generation capacity being competitive to operate or not.

Fuel price volatility, which ultimately leads to high consumer electricity prices, is expected to make continued investment in these assets even less attractive compared to renewables which require near-zero marginal operating costs. .

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