By Prashanth Prameswaran

Gas Pipeline in Vietnam. Photo by Gorik Francois, used under a Creative Commons license.

Earlier this month, International Energy Agency (IEA) chief economist Fatih Birol told a 350-strong audience here in Singapore that Asia could help drive a new “golden age” of natural gas in the coming years. Feverish demand from China and India, coupled with the emergence of Australia as an emerging liquefied natural gas (LNG) giant, could send gas use skyrocketing by more than 50% to account for a quarter of the world’s energy demand by 2035.

Trends and statistics certainly seem to support Mr. Birol’s claim. The use of natural gas in Asia has been increasing rapidly over the past two decades, and the region is already a hub of the global gas trade, particularly in LNG where Japan and South Korea alone account for half of the world market. Future demand for gas could increase even further relative to oil and coal as energy-hungry Asian countries look to lessen their dependence on Middle Eastern crude and reduce their carbon footprints. There is also increased confidence that new supplies of conventional and unconventional gas will come on-line in other parts of the world, particularly given the shale gas boom in the United States.

Just this past week, the world’s longest natural gas pipeline connecting central Asia and China went into operation, Russian energy giant Gazprom announced it was staking its future on LNG sales to Asia, and a significant milestone was reached for Australia’s Browse LNG project, just one of more than a dozen initiatives either in the construction or planning phase in the country. Asia seems poised to lead the world into the golden age of gas.

But all that glitters is not gold. Some planned or ongoing projects may not reach fruition. For instance, there are analysts who are sceptical about whether all the LNG initiatives in Australia will materialize on schedule given various financial, environmental and labour constraints. More significantly, the extent to which Asia can power the world towards a “golden age” of gas may be limited by two things: prices and politics.

Currently, domestic gas prices in Asia tend to be higher compared to coal, and lower compared to international prices. As a result, coal continues to outperform gas in share of total power generation (80% vs. 1% in China, for instance), while gas remains underutilized due to the lack of investment and infrastructure. If gas is to overtake coal as the major fuel in Asia, it will require governments, particularly in large markets like India and China, to dramatically reform their electricity pricing. This is likely to be a slow and painful process, because it involves phasing out subsidies and other benefits doled out for political gain.

Politics may also continue to stand in the way. India is the most notable victim of this phenomenon, with the Iran-India-Pakistan pipeline continuing to experience significant opposition from the United States due to Tehran’s involvement and the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline facing the daunting prospect of passing through unstable regions in Afghanistan and Pakistan. Progress on the Trans-ASEAN gas pipeline has also been slow due to domestic politics and political constraints, among other issues.

There is still a lot of promise for the future of natural gas in Asia. Trends in both supply and demand seem to point to gas taking a rising share of the energy mix, and countries are getting more concerned about energy security and climate change. But whether or not this will amount to a “golden age” will be determined not just by projections, but the interaction of age-old forces such as politics, power and prices.

Prashanth Parameswaran is a master’s candidate at the Fletcher School of Law and Diplomacy specializing in energy policy and international business relations. He is currently conducting field work in Southeast Asia. He also blogs regularly on Asian affairs at The Asianist.