Given the oft-repeated line that it is gas demand growth in Asia – and above all China and India – that matters for future suppliers, it is not surprising that some upstream companies are decamping to the eastern hemisphere or expanding their foothold there.  

After all, gas that is underneath one’s own doorstep ought to be cheaper to consume at home than gas that has to be brought there from the other side of the world, undergoing expensive processing at either end.  

Some of that local gas will be needed to replace depleting fields, although recovery rates are improving anyway; and some will be needed to fuel new power plants. Some will also be needed for new markets, previously uneconomic to supply with gas owing to their thinly sparse populations or small demand overall.  

As well as the smaller clusters of fields dotted around southeast Asia that interest the mid-caps, for whom utilities, local power generation and industrial sites are the natural markets, there are still some huge fields waiting to be developed, once the technology has caught up. 

There is Indonesia’s Natuna field, for example, described tongue-in-cheek by former Exxon CEO Lee Raymond as the “world’s biggest Perrier source” owing to the very high concentration of carbon dioxide. Further to the west, onshore and possibly more useful to China, is the very sour Kashagan oilfield in Kazakhstan, said to have a very large gas cap and good reservoir quality. 

The technical challenge there is of a different nature but China is already an investor, having bought out BG’s entire stake – much to the latter’s relief – before the problems became known. The central Asian republic is already playing a part in China’s belt and road strategy and supplying it with gas, as is neighbouring Uzbekistan, with Lukoil’s participation upstream; and a larger supplier than either is Turkmenistan, again hosting Chinese investors. 

Russia is competing with these former USSR members for the Chinese pipeline market, with its vast reserves in eastern Siberia ready to flow to China once the 38bn m³/yr Power of Siberia pipeline is completed. Another line might follow later, depending on how well the first one goes. 

Russia has already made big inroads into Asia’s markets with LNG. First Sakhalin, whose expansion is still being discussed; and now the new slew of Yamal projects that could add some 50mn metric tons/yr once completed in the coming years.  

Those two projects, Yamal LNG and – confusingly – Arctic 2 LNG have little to do with free market economics and much to do with geopolitics – as the financing and other kinds of state support in Russia prove. Majority owner Novatek has already had talks with Rosatom about partnership in icebreakers and is planning a transhipment depot in Kamchatka, to allow reloading on to conventional tankers. No details have been given but NGW understands that the capacity is to be enough to hold up to four cargoes of 170,000 m³ each – so a sizeable investment to be shared with a number of Russian and Japanese entities. 

Moscow is serious about using gas trade to shift its centre of gravity eastwards, where gas is concerned – first from of a natural desire to hedge and now with more urgency as relations with the West worsen. 

But demand forecasts are always risky things. Consider in Europe the dash for gas, where investors in good faith built clean, dispatchable generation capacity in Germany, the Netherlands and elsewhere, expecting the gas they had contracted to be needed. Unprepared for the political determination to invest in renewables, they watched helplessly as their plants were idled, or forced to act on standby for an unremunerative return if all else failed. Write-offs and mothballing were the response, while lawyers got to work looking for the weak points in long-term contracts. 

Similarly, major gas marketers and transmission system operators spent billions on LNG import infrastructure in Europe, ready for the supply-demand gap to widen; but demand fell, Russian and Norwegian supplies grew and Asian prices rose, all to the detriment of the capacity holders. 

It is difficult to avoid, in that context, comparing the US of the last decade with the US of today: expecting the imminent dawn of the perpetuallly $7+/mn Btu gas, many companies – most famously Cheniere Energy – planned sufficient import capacity to take in what was expected to be cheap LNG from the Middle East and Asia. But while the federal energy regulator was kept busy, very few were built. Domestic production turned out cheapest.  

And yet many infrastructure companies are now rushing to build US export capacity. Following Cheniere is Global Venture, selling a million mt/year here and there, gradually reaching its goal of 10mn mt/yr for its first plant. Others are talking up their game but holding their cards close to their chest. 

As before, but in reverse, many projects are chasing the same buyers. Qatar has a geographical advantage for Asia, as well as a cost advantage over the US and Africa: once it sells its capacity, what next? East Africa looks a good bet, as do the fields off Senegal/Mauritania: those with a mix of producers and buyers in the ownership structure ought to have an advantage. And as Ophir has found out to its cost, simplicity is key. But it will be fascinating to watch the battle play out.