Cheap Coal Keeps Gas Golden Age a Dream as Buyers Become Choosy

  • Role of gas in EU reduced in past year as coal gained share
  • South Korea wants destination limits in LNG contracts scrapped

Add cheap coal to the challenges keeping the golden age of liquefied natural gas far from reality.

Coal is gaining market share in the European Union while the role of natural gas in the region has shrunk in the past year, Christopher Jones, a director for energy with the European Commission, said at a conference in Tokyo Wednesday. Buyers are in no hurry to commit to purchases, according to Qatar, the world’s biggest exporter of the supercooled fuel.

“Cheap coal and increasing competitiveness of renewables are squeezing gas in many markets,” Fatih Birol, executive director of the Paris-based International Energy Agency, said during a speech in Tokyo. “For many, this means the golden age of gas remains more of a dream than reality.”

Japan’s return to nuclear power after the 2011 Fukushima disaster and less expensive alternatives are undermining demand that prompted the IEA to envision a golden age four years ago. LNG producers are forecast to add 50 million metric tons of new capacity next year, the largest single annual increase in history and equivalent to a fifth of current global demand, according to Sanford C. Bernstein & Co.

LNG shipped to northeast Asia has tumbled to $7.10 per million British thermal units, more than 60 percent below a record $19.70 in February 2014, according to New York-based Energy Intelligence Group. A glut will cap LNG prices for years, according to Citigroup Inc.

‘Grave Mistake’

The bulk of the new supply is coming from Australia, where companies including ConocoPhillips, Royal Dutch Shell Plc and Inpex Corp., counting on Asia’s consumption, are spending more than $150 billion on ventures due to start in the next two years.

“The energy industry assumed that Asian consumers would take any amount of LNG at any price because Asia is the center of global demand growth,” Birol said. “But this assumption was a grave mistake.”

Meanwhile, coal is gaining ground. Use of the fuel in the Netherlands rose to a record in the first five months of the year, according to industry consultant Energy Aspects Ltd. In Denmark, the Liberal government is set to reverse ambitious CO2 emission targets introduced by the previous administration, and also drop plans to phase out coal-fired power plants and become fossil-fuel free by 2050.

Oil and gas prices that have fallen sharply over the past year are disrupting global supply-chain patterns and dynamics, Qatar Energy and Industry Minister Mohammed Al Sada said at the conference in Tokyo Wednesday. Clauses in long-term LNG contracts that restrict the destination of cargoes to specific buyers or countries should be scrapped, Jae Do Moon, vice minister of Trade, Industry and Energy for South Korea, said at the event.