South Asia’s $107 billion LNG expansion faces risks amid West Asia conflict

Mumbai: South Asia’s planned expansion of liquefied natural gas (LNG) infrastructure could expose the region to long-term economic and energy security risks in the wake of the maritime situation in West Asia, arising out of the war involving the US-Israel combine and Iran.

The Asia Gas Tracker (AGT) of Global Energy Monitor (GEM) stated that India has the world’s third-largest buildout of gas pipelines with nearly three-quarters in construction.

As energy markets reel from price spikes, it has become a cause of concern for South Asia.

“We’ve seen this story before, and South Asian economies that import LNG will struggle with these price shocks. It’s a reminder of the risks of building new gas infrastructure, and that domestic alternatives like renewable power are more affordable and reliable in the long run,” Robert Rozansky, global LNG analyst for GEM, said in a report on the situation because of shipping disruptions in the Strait of Hormuz and its consequences.

AGT data shows that India, Bangladesh, and Pakistan have $107 billion in LNG terminals and gas pipelines that have been announced or are under construction.

South Asia accounts for 17 per cent of global LNG import capacity under development (110.7 million tonnes per annum) and 17 per cent of global gas pipelines by length (34,146 km).

Bangladesh and Pakistan each have enough LNG import capacity in development to roughly double existing capacity, while India is pursuing the world’s second-largest LNG terminal capacity expansion and the third-largest gas pipeline buildout.

Yet despite expectations of a global LNG glut later this decade, GEM finds that even in a relatively-balanced LNG market, disruptions to shipping routes and production can quickly raise delivered prices and tighten access. These factors suggest gas is unlikely to be competitive in the long run against alternatives, potentially weighing down the growth of emerging economies that build around it.

“All three countries are price-sensitive LNG importers with a history of project cancellations. Over the past decade, India, Bangladesh, and Pakistan have shelved or cancelled 2-3 times as much LNG import capacity as they have brought online. Proposed import terminals in Southern Asia exhibit materially higher failure rates than comparable projects in Europe. The war in West Asia lays bare just how quickly a growth market can sway into an affordability crisis and up the potential likelihood of project shelving or stalling,” according to a GEM press statement issued on Thursday.

At the same time, renewable power is already outcompeting gas in India and Pakistan’s power sectors, and alternative solutions like green hydrogen can wean the region off of relying on gas imports for industry. Solar generation in Pakistan has more than tripled in three years, while India is on track to meet over 40 per cent of electricity demand with renewables by 2030. Energy storage solutions are improving, making inroads in Asia, and can offer grid flexibility eroding gas’ assumed role in peaking and balancing.