Gas to challenge coal in the Asian power generation mix: Wood Mackenzie

Coal-fired power generation is facing increasing competition from gas, according to global energy, metals and mining consultancy Wood Mackenzie.

Wood Mackenzie said coal has dominated as the fuel of choice in Asia since 2010, even in the gas-centric power markets of Southeast Asia.

“In recent years, it has been assumed that coal will remain the most economical option for power generation. However, downward pressure on gas prices as well as individual market conditions in Asia are creating conditions in which it might compete with coal in the region,” the consultancy said.

Wood Mackenzie Research Director for Asia Gas and Power Graham Tyler said: “While gas-coal competition is more commonplace in the US and Europe, in Asia, this is a new dynamic as coal and gas prices have not been at close enough levels for this to be a consideration.

“Spot LNG prices have fallen to around US$7 per million British thermal units (MMBtu) in recent months and we do not forecast any sustained price recovery above US$10/MMBtu with over a 100 million tonnes per annum (Mtpa) of new LNG expected to be operational by 2020.

“This looming supply glut will create an environment where coal versus gas competition in Asia is a real possibility.”

Wood Mackenzie said that currently coal accounts for half of all power generation across Asia, while gas only accounts for 11 per cent. However with coal prices not expected to fall more dramatically and gas prices expected to see renewed softening after this summer, Wood Mackenzie asserted that the price differential between gas and coal will be one to watch – especially in China, South Korea and Malaysia.

Wood Mackenzie said that Asia’s strong long-term economic growth will see power demand growth average five per cent a year through to 2030, which will require over 2,000 gigawatts (GW) of additional power generation capacity to be built between now and then.

With gas prices set to remain soft and increasing environmental pressures, it is likely gas will account for a higher proportion of this new power generation. As long as gas prices remain low, industry players need to continue to watch for individual market influencers to see where the most upside for gas may emerge.

Read our interview with Accenture Asia Pacific Growth and Strategy Lead in Utilities Ann Burns for the lowdown on the future of gas-fired power generation. This article appeared in the Summer 2014/15 edition of Gas Today. If you are not a subscriber, sign up here.

Enter your details to subscribe to the free fortnightly Gas Today e-newsletter

Thank you for signing up for the Gas Today Online Update.