Column: Southeast Asia's bright gas demand outlook may disappoint

Southeast Asia is fast becoming a key growth market for natural gas, and on paper has an aggressive development pipeline for gas-fired power stations that if completed would ensure the region would be a major gas consumer for decades.

Southeast Asia is also one of the fastest growing destinations for shipments of liquefied natural gas (LNG). Total LNG volumes to the region have more than doubled since 2019, outpacing all other key markets, according to Kpler.

But gas bulls should be wary about how much of Southeast Asia's proposed gas power development pipeline remains stuck in the planned phase, as only around 6% of the region's announced power projects are currently under construction.

The remainder are still only planned on paper, and so remain at risk of potential delay or cancellation if power sector or government priorities switch to alternate power sources.

The risk of deep cuts to gas-fired capacity plans is high, as clean energy capacity development has grown at three times the pace of gas-fired capacity since 2018, and has recently exceeded regional gas capacity for the first time.

Steadily rising clean generation capacity is in turn forcing energy system planners to assess the generation requirements from remaining system components, placing potentially costly and long-duration development projects in jeopardy.

Big plans. Close to 100,000 megawatts (MW) of gas-fired power generation is either already under construction or has been announced across Southeast Asia, according to Global Energy Monitor (GEM).

That total is the third-highest for all regions behind Eastern Asia, which includes China, and Western Asia, which includes the Middle East, GEM data shows.

Of that planned total, only around 12,600 MW is currently under construction, while nearly 87,000 MW is categorized as being in pre-development.

The region has around 109,000 GW of gas-fired capacity in operation, which places Southeast Asia seventh out of 15 regions tracked by GEM in terms of operational gas capacity.

But if all of Southeast Asia's pre-development gas plans come to fruition, the region would jump to fourth on the global gas power capacity table, and therefore emerge as a significant player in global gas markets.

Capacity flux. The scale and pace of any region's power sector capacity development is constantly in flux and determined by a slew of factors, including the economics of each project, the extent of government aid for developers and the cost of debt financing.

All of those factors can fluctuate over the course of a planned development project and mean that data trackers such as GEM frequently revise projections.

Gas-fired capacity requirements are also determined by the power generation mix within each country, which is also changing at a faster pace than many large-scale energy developers can keep up with.

For some developers of fossil-fuel fired plants, the speedier emergence of clean energy projects that can generate an equal or greater amount of low-emissions power could result in their proposed projects becoming surplus to requirements before they can even be built.

Growth. For Southeast Asia's gas power plant developers, the rapid build-out of clean electricity generation capacity over the past five years is undermining the demand case for major rises to generation capacity from fossil fuels.

Between 2018 and 2023, gas-fired generation capacity within the Association of Southeast Asian Nations (ASEAN) member countries increased by 16% to roughly 103 GW, according to energy think tank Ember.

That expansion pushed regional gas capacity to a record, but faster capacity growth by other power sources led to a fall in natural gas' share of regional electricity capacity to a record low 31% in 2023, from 37% in 2018.

Over the same period, clean energy generation capacity across ASEAN increased by 63% to 105 GW.

That means regional clean capacity was already greater than regional gas capacity last year, and keeps growing as more solar and wind energy projects come online at a much faster clip than new gas-fired capacity.

Country risk. The growth pace of clean generation capacity has been especially quick within Vietnam, which is also the country with the highest proportion of planned gas-fired capacity in Southeast Asia.

Of all the announced gas-fired capacity plans in Southeast Asia, roughly half is slated to be built in Vietnam, GEM data shows.

But Vietnam is also a leading clean energy capacity builder, which is altering the extent of the country's gas-fired needs.

From 2018 to 2023, Vietnam's clean electricity generation capacity jumped by 146% to 46 GW.

Over the same period, Vietnam's gas-fired capacity remained flat at 8.15 GW and resulted in gas capacity falling to only 10% of total electricity generation capacity in the country.

That gas share compares to 18% in 2018 and 38% in 2010, and indicates that gas-fired power has already been steadily squeezed out of Vietnam's generation mix while renewables and hydropower have taken on greater systemic importance.

Vietnam's power producers have also expanded coal-fired capacity to record highs in recent years in order to keep overall energy costs in check and boost electricity supplies.

The roughly 27 GW of coal-fired capacity in place in Vietnam means that fossil fuels already account for a roughly 43% share of total generation capacity in the country.

Any further expansions in fossil-fired capacity - even from cleaner-burning natural gas - would be at odds with the country's stated target of net zero power emissions by 2050.

In addition, a recent price cap set by the government on power generated from LNG imports is also expected to slow investments in LNG import terminals in the country, which remain exposed to swings in international LNG prices regardless of domestic power price limits.

That leaves the country's aspiring gas-fired power developers at risk of disappointment.

Some outdated coal-fired plants can be replaced by gas plants, which would help some of the proposed projects cross the finish line.

But at this stage the full completion of all planned gas-fired projects in Vietnam seems unlikely, and means that project developers may need to cut back on gas capacity construction estimates for the entire region.

 

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