Maguire: Gas bulls need to be careful of coal's stranglehold on Asia's energy sector.

Gas producers, exporters and traders are betting on Asia to grow gas demand in the future. Asia is the fastest-growing market for power in the world.

Gas peddlers should temper their enthusiasm, however, because coal-fired power is growing in the region.

Global Energy Monitor (GEM) reports that Asia's biggest economies are building three times as much coal-fired electricity capacity than they do gas-fired. They already depend on coal to generate roughly 45% percent of the region's power.

As part of a continuing drive to produce clean, domestic energy, large economies in Asia, including China, India and Japan, are developing more solar, hydropower and wind power than gas-fired capability.

The combination of a steep increase in coal production and a record-breaking clean power output could serve to limit gas usage across the region. This is especially true if gas prices are higher than other power sources, or more volatile.

Power Pipeline

GEM reports that in 10 of Asia's biggest economies, including China, India and Japan, as well as South Korea, Indonesia Vietnam, Thailand, Taiwan and the Philippines, there are just under 1 million megawatts of new power capacity being built.

Solar farms make up the largest portion of that total (26% or 270,000 MW), while coal-fired power plants are the second largest (24%) with just over 250,000 MW.

Hydropower and wind farms each account for 20%, while gas-fired plants make up 7%, or around 70,000MW.

Nuclear plants are responsible for another 4% of the total, while geothermal and bioenergy facilities account for each less than 1%.

COAL COMFORT

The coal's large share in Asia's thermal energy footprint is due to several factors.

Gas and coal-fired plants can compete directly in networks, allowing them to adjust their outputs to meet system needs.

Gas has become the most cost-effective alternative to coal in Europe and North America due to efforts to reduce pollution and the expansion of gas distribution networks.

Data from the energy think tank Ember show that coal has been responsible for more than half of Asia's utility scale power production over the last two decades and has produced record amounts of electricity each of these past four years.

This deep coal penetration was made possible by the rapid and dense construction of coal storage and distribution channels, which ensured that power companies had a constant supply of relatively inexpensive coal when needed.

Gas storage and distribution networks are still sparse and expensive in Asia. They require special tanks and pipelines to maintain pressure, which makes them more expensive than coal systems.

Most Asian power companies have chosen to build new coal plants over gas ones, particularly where utilities are under pressure.

Gas-fired electricity generation is expanding in China, which is the world's biggest power consumer and coal user. This expansion comes amid efforts to reduce coal pollution.

Even there, nearly five times as much new coal capacity is being built than gas capacity. This will allow coal to remain the main power source for many more decades.

Slow Uttake

Gas power has been slow to spread in Asia due to a number of issues, including the high cost of building gas power plants and pipelines, as well as the lack of storage facilities.

According to the Energy Institute, the Energy Institute, the Energy system operators are concerned about the concentration of production in just three countries: the United States (including Russia) and Iran (which accounts for almost half of the global output).

In recent years, Russia and Iran were both subjected to international sanctions that made it difficult for small utilities to purchase or trade their products.

The U.S., the world's largest gas producer, is expected to use tariffs in trade negotiations during President Trump's second tenure, raising the risk of retaliation from Asia, which could make U.S. products off-limits.

Nearly half of all gas is sourced from countries which could be considered as unreliable trading partners and expose gas importers at risk of costly supply chain interruptions.

Gas pipelines across borders are regularly threatened with sabotage or destruction during political disputes. The cost of shipping gas by sea is also often many times higher than the cost of shipping coal of comparable size.

Finaly, around 80% global coal supply comes from Asia. This means that Asian power plants are usually able replenish their stocks quickly from a variety of suppliers.

The proximity of competing suppliers helps to keep coal prices down during localised supply disruptions and keeps power companies from having to accumulate costly inventories.

The coal industry will continue to dominate Asia's power generation, even though efforts to increase gas exports from the rest of the world are expected to rise steadily in the next few years.

These are the opinions of the author who is a market analyst at.

(source: Reuters)