Gas bulls should beware of coal's chokehold on Asia's power sector

Gavin Maguire

Natural gas producers, exporters and trading firms are banking on Asia--the world's largest and fastest-growing power market--to drive gas demand growth over the coming decades.

But while overall gas consumption in Asia will certainly expand from current levels, gas peddlers may need to temper their optimism in light of growing coal-fired capacity throughout the region.

Asia's largest economies have three times more coal-fired power capacity under construction than gas-fired capacity, according to Global Energy Monitor (GEM), and already rely on coal for roughly 45% of regional power generation.

Large economies in Asia--including China, India, Japan and Vietnam--are also developing far more solar, wind and hydropower capacity than gas-fired capacity, as part of an ongoing drive to produce clean home-grown energy.

This combination of steep growth in coal capacity alongside record clean power output may serve to limit the growth of gas use across the region, especially if global gas prices remain higher and more volatile than alternate power sources.

Power pipeline

Across 10 of Asia's largest economies--China, India, Japan, South Korea, Indonesia, Vietnam, Thailand, Taiwan, the Philippines and Pakistan--there is just over 1 million megawatts (MW) of new power capacity under construction, according to GEM.

Of that total, solar farms account for the largest share (26%, or 270,000 MW) while new coal-fired capacity makes up the second largest share (24%), with just under 250,000 MW.

Wind farms and hydropower plants account for a further 20% each, while gas-fired power plants account for a 7% share, at around 70,000 MW.

Nuclear plants account for a further 4%, while bioenergy and geothermal facilities each account for less than 1%.

Coal comfort

Coal's outsized share of Asia's thermal power footprint is driven by several factors.

Coal-fired plants directly compete with gas in networks that can adjust output of both to manage system requirements.

In Europe and North America, coal generation has lost ground to gas due to pollution reduction efforts and as increasingly dense gas distribution networks have enabled the cost-effective adoption of gas power in most areas.

In contrast, coal has accounted for over half of all of Asia's utility-scale power production for over two decades, and has generated record amounts of electricity in each of the past four years, data from energy think tank Ember shows.

That deep coal penetration has been facilitated by a rapid and dense build-out of coal distribution and storage channels that have ensured power firms have had a steady supply of relatively cheap coal as needed.

Gas distribution and storage networks, however, remain sparse in Asia, and are often more expensive to build than the comparable coal system due to the need to keep gas under pressure in specially built tanks and pipelines.

That has resulted in most Asian power firms opting to expand coal output over building new gas plants, especially where utilities are under pressure to add output as quickly and cheaply as possible.

In China, the world's largest power consumer and coal user, an expansion in gas-fired power generation is underway amid efforts to reduce pollution from coal use.

But even there, there is nearly five times more new coal capacity under construction than gas capacity, which will serve to keep coal as the primary power source for several more decades.

Slow uptake

Beyond the cost of constructing gas power plants, pipelines and storage systems, there are other issues that have stalled the widespread uptake of gas power in Asia.

One major concern for power system operators is the concentration of gas production among just three countries--the United States, Russia and Iran--which account for nearly half of global output, according to the Energy Institute.

Russia and Iran have both been subject to international sanctions in recent years that have rendered the purchase or trade of their products difficult for small utilities.

Meanwhile, the U.S.--the world's top gas producer--looks set to wield tariffs as part of trade negotiations under President Trump's second term, which raises the risk of reprisals in Asia that could render U.S. goods off limits.

That means nearly half of the world's gas supply stems from countries that could be viewed as potentially unreliable trade partners, and could expose gas importers to costly supply chain disruptions.

Cross-border gas pipelines are also under regular threat of severance or sabotage during political disputes, while the cost of shipping gas via sea is often multiple times more than a comparably-sized cargo of coal.

Finally, around 80% of global coal supplies come from Asia, which means that Asian power producers are usually able to replenish stocks at short notice from numerous suppliers.

That proximity to competing vendors helps keep coal prices in check during any localised supply disruptions, and prevents power firms from needing to build up costly inventories.

That in turn means coal will likely remain the primary power source across Asia, even as efforts to boost gas exports from other regions steadily climbs over the coming years.

(The author is a market analyst for Reuters)