Gas for Asia. Gas Supplies to Asia-Pacific Region Becomes a Priority for Russia

By Benjamin Priddy, June 10, 2013

Building new export infrastructure in Russia’s Far East is a major part of Moscow’s push to Asia-Pacific energy markets. Yet, rising competition among global LNG suppliers, political instability on the Korean Peninsula, and significant infrastructure investment requirements create commercial and strategic challenges for Russia’s eastern energy strategy. Hirofumi Arai, Senior Research Fellow at the Economic Research Institute for Northeast Asia (ERINA) and Secretary General of the Northeast Asian Natural Gas & Pipeline Forum (NAGPF)-Japan, recently spoke with Oil&Gas Eurasia in an exclusive interview on energy cooperation and the outlook for Northeast Asia’s major energy players: Japan, the Koreas, and China. 

Oil&Gas Eurasia: Many oil and gas suppliers are shifting towards the energy-hungry markets of Asia-Pacific, but what is your outlook on future energy demand growth in Northeast Asia? Will gas demand, in particular, continue to grow well into the future? 

Hirofumi Arai: According to the Institute of Energy Economics of Japan, demand for gas will rise sharply in Northeast Asia to 2035, especially in China. In Japan, however, demand will likely remain on the same level as today. Of course, there are uncertainties regarding the future of nuclear energy in Japan. You probably are familiar with the Fukushima Daiichi accident that took place in 2011. After that, the Japanese government decided to make all efforts to completely phase out nuclear energy within 20 to 25 years. However, following the transition of government at the end of 2012, the new ruling party has decided to reconsider this policy, believing that Japan should only partly phase out nuclear power plants. There is no government decision on this issue yet, but we expect one sometime this year. Future demand growth for gas could very well depend on what the Japanese government decides to do regarding the nuclear energy industry. 

Still, if you look at the outlook for gas throughout the entire region of Northeast Asia, Japan’s share of overall demand is not near as high as that of China’s. Thus, in my view, if the Japanese government decides to continue to use nuclear energy, this will not have a strong influence on the future direction of regional gas demand. It will still be high. Of course, there are some additional uncertainties regarding economic growth in the region.

OGE: After the Fukushima accident in 2011, Japan’s demand for LNG played a key role keeping some LNG suppliers, particularly in the United States, afloat. Yet, NAGPF is a strong proponent of creating a regional gas pipeline network. Will LNG face competition from new pipelines in Northeast Asia? 

Arai: For Japan, LNG will continue to be the primary source of gas supply. The same holds true for South Korea. Yet, it depends on what side you view the situation. Currently, Japan is solely reliant on LNG imports for its gas supplies, since there are no gas pipelines to Japan. However, in the future there is a possibility that a gas pipeline from Sakhalin could supply Japan with additional natural gas. Although there is currently no concrete