LNG as double engine for change: coal phaseout in Asia, net-zero gains worldwide

Liquefied natural gas (LNG) can play a key role in speeding up Asia’s transfer from coal to more renewable sources in power generation and help the region–and consequently, the world–meet its decarbonization objectives, a new study by S&P Global Commodity Insights (SPGCI) has found.

Being home to more than half of the global population, Asia represents nearly half of the world’s emissions and energy consumption, accounting for 45% in the first and 49% in the second category. Its rapid development is expected to drive global economic and energy demand growth.

However, while the world is moving away from fossil fuels, they still play a prominent and persistent role in Asia’s energy mix, and the region faces major challenges in its transition to cleaner energy.

Inadequate economic incentives for decarbonization, the legacy of entrenched coal dependence, and uneven renewable energy resource distribution are listed as some of the reasons for Asia’s slow pace of power transition.

Coal remains a major energy source in the region, representing around 80% of global coal use. Furthermore, its use has grown at an approximately 2% compound annual growth rate (CAGR) from 2015 to 2024, the study states.

Since efforts need to shift into a higher gear to meet the Paris Agreement targets, an independent study, the ‘Pathways to Accelerate Power Emissions Reduction in Asia,’ was commissioned by the Asia Natural Gas & Energy Association (ANGEA).

In it, emissions reduction pathways to 2050 for power generation in Japan, the Philippines, and Vietnam–and by extension, other nations in Asia–are discussed. An approach described as technology-agnostic was used to explore viable pathways for accelerating coal reduction.

In addition to a balanced case scenario for each country, SPGCI modelled a base case scenario reflecting a business-as-usual trajectory, as well as an accelerated approach, thanks to which full decarbonization would be achieved by 2035.

The three focus countries have made some progress in the LNG arena recently. Vietnam inked a deal to import LNG from Malaysia, and Japan’s Tokyo Gas purchased an interest in a subsidiary of Philippine utility First Gen Corporation (First Gen). The latter owns and operates an offshore LNG terminal in Batangas City, the Philippines.

Additionally, Vietnam’s first LNG-fired power plant, Nhon Trach 3, is set to become operational soon. After the initial firing in January and connection to the national grid for a trial run in February, the project is expected to start commercial operation in July.

Based on the study, one way to cut emissions affordably would entail a balanced approach to energy transition in the power sector, with LNG-fired power supporting expanded use of renewables.

Coal would be substituted with renewables and available alternatives by country, with generation and emissions determined via least-cost hourly dispatch. SPGCI claims this would enable 50% of coal-fired power to be phased out by 2035.

“This study underscores the critical role that LNG should play in reducing emissions in Asia and debunks the myth that nations must choose between rapid decarbonisation and economic growth,” ANGEA CEO Paul Everingham said.

Everingham pointed out that more than 90% of power sector emissions in Asia result from coal-fired power. Therefore, the region’s ability to phase out coal affects global decarbonization efforts.

The report highlights pathways for the three focus countries to phase out coal and reduce emissions by 33–38% by 2035. Additionally, unlike some other decarbonization efforts, this does not come with a hefty price tag, as it would require the countries to increase their energy systems spending by around 8–16%.

In contrast, to achieve full decarbonization by 2035, the Philippines and Vietnam would need to more than double their current investment in energy systems, while Japan would have to invest nearly 75% more.

“And that’s before you take into account the average marginal electricity prices – the costs paid by communities and industries – which would more than double for the Philippines and more than triple in Japan and Vietnam,” noted Everingham.

“No country can entertain that type of financial burden, but especially not emerging nations such as the Philippines and Vietnam, where continued economic growth is needed to raise living standards.”

Recognizing that multiple transition pathways exist, and that cost is only one factor, the study aimed to offer indicative metrics that can inform stakeholder discussions on potential decarbonization actions.

The study also looked at the contributions that LNG produced in Australia, the U.S., Qatar, and other exporting nations could make to emissions reduction efforts by trade partners in Asia.

“By providing policy environments that are conducive to investment, export nations can continue to develop major LNG projects that will help Asia decarbonise,” Everingham said. “Importantly, this course of action would align with energy plans that are already being progressed in Asia.”

Based on the study, the average lifecycle carbon intensity for LNG sourced from Australia, the U.S., and Qatar and used for electricity production in the three countries was 47% lower than for coal.

Additionally, for each ton of CO2 emitted when producing and shipping LNG to Asia, more than 3 tonnes of CO2 emissions are avoided on a lifecycle basis when it replaces coal in power generation.

“We think this study is an important piece of research that can contribute to discussions in the region about how decarbonisation and coal phasedown can best be pursued and progressed, by providing quantitative data points to inform trade-offs of different pathways,” said SPGCI Director, Energy Transition Consulting, Allen Chan.

In conclusion, SPGCI believes efforts should be focused on addressing structural barriers to coal phase-out and decarbonizing the gas/LNG value chain, while incentivizing and scaling renewable power to achieve the decarbonization of Asia’s power sector.

Japan’s JERA recently inked LNG import deals with several U.S. partners. Under these, the Japanese major will procure up to 5.5 million tonnes per annum (mtpa) of LNG in what is said to be the largest U.S. LNG offtake by a single buyer to date, and Japan’s largest ever from the United States since the country first imported LNG from Alaska in 1969.