South Korea’s latest forecast for future LNG demand may have proved disappointing, but it is an improvement on the previous forecasts, say analysts.
“The release of the long-term electricity plan last December had braced LNG suppliers for the disappointing demand growth in what is now the world’s third largest LNG market,” said Wood Mackenzie principal analyst Kiah Wei Giam.
“The initial optimism of LNG suppliers when President Moon was elected has been replaced with the recognition that more is needed to be done for gas to displace coal and nuclear.”
South Korea’s recently released 13th long-term natural gas supply plan forecast that by 2031, gas demand will reach 40.5mt, just 3mt up from 2017 levels.
“While the 8% growth over 14 years looks disappointing, the latest forecast is already a major upgrade over the 12th gas plan, which forecast that it would take until 2029 for demand to reach 35mt,” says Giam.
Wood Mackenzie says gas demand will actually fall before growing again post 2025, due to the additions of coal and nuclear capacities between now and 2023.
“Our analysis forecasts 4 GW and 5 GW net additions for coal and nuclear respectively over the next five years,” says Giam.
“With the electricity market facing oversupply over the next few years, it will be even harder for gas to displace coal or nuclear based on pure economics.”
However, Wood Mackenzie says the South Korean government’s policies limiting new coal or nuclear generation will help.
Under existing government legislation all coal units that are over 30 years of age will be required to shut down.
“Based on our initial analysis, even with gas-friendly polices in place, gas demand will still decline, hitting a trough of 34mt in the 2022/23 period,” said Giam.
“Gas demand will only turn the corner after 2024 as 4 GW of coal and 5 GW of nuclear are retired between 2024 and 2031. In addition no new units of coal nor nuclear will be added beyond those that are approved.”
Wood Mackenzie says another upside to South Korea’s gas demand could come from a potential shortfall in renewables.
“While we expect solar and wind generation to grow by nine times between 2017 and 2031, the increase is still insufficient to meet electricity demand growth,” said Giam.
“The government targets renewables to account for 20% of the electricity generation by 2030 while we forecast the share will only reach 15%.
“As such, gas will be needed to make up for the shortfall. Hence, we expect gas demand to reach 42mt by 2031, around 2mt higher than the government’s forecast.”
Giam concludes: “President Moon may not have delivered on his electoral promise to substantially increase the share of gas in overall generation mix, but he has successfully laid the foundations for gas to take centre stage in South Korea's future energy mix.”
