[EAI Working Paper] Liquified Natural Gas Links the Energy Systems of China, South Korea, and the United States
ISBN 979-11-6617-070-6 95340
On November 13, 2020, the EAI and Brookings institution jointly held the 2nd online seminar of the <After Trump> series titled "Prospects for U.S.-South Korea Cooperation in an Era of U.S.-China Strategic Competition". In session 2: economy, energy, and environment, Samantha Gross addressed that whilst tensions between the US and China are sharply on the rise, especially in traditional areas of cooperation including economy and security, energy cooperation may be a good place to start the dialogue, since interests are so obviously aligned in this area-the liquified natural gas (LNG) sector. For the US, China and South Korea, respectively the world’s second and third largest importer of LNG, are a very attractive market. At the same time, the US’s LNG supply not only is affordable but also helps South Korea and China diversify its import sources, whose demand for LNG will be on the rise following their pledges to decrease the prevalence of coal.
Quotes from the Paper
Introduction to the energy systems in China and South Korea
Energy security has long been an important geopolitical issue for the countries of east Asia. Rapid economic growth in the region over the past decades has only increased the prominence of the issue in the regions’ international affairs. Although primary energy demand in China is more than ten times that in South Korea, the energy systems of the two countries share important characteristics. Both countries import significant shares of their fuel, although for slightly different reasons.
LNG: China and Korea are important buyers in a growing market
China and Korea are the world’s second and third largest importers of LNG, respectively. (Japan is the leading importer.) LNG is Korea’s only source of natural gas, as it has negligible domestic production and no source of pipeline supply. On the other hand, China has significant natural gas production, but not enough to meet demand. In 2019, LNG comprised 28% of China’s natural gas supply while pipeline gas supplied 16%. However, this supply mix is changing fast. China’s pipeline gas has historically come almost entirely from Central Asia: from Turkmenistan, Uzbekistan, and Kazakhstan. However, the Power of Siberia pipeline from Russia delivered its first gas at the end of 2019. This pipeline will deliver 38 billion cubic meters (bcm) of gas annually, an 80% increase in pipeline gas supply. Nonetheless, China’s growing appetite for natural gas means that LNG imports will continue to grow.
Events in the United States brought changes to the global LNG market
The United States has had an overwhelming impact on global gas markets in the last decade. In the early 2000s, gas production in the United States was falling and the United States was expected to become a significant importer of LNG. Important market players, notably Qatar, made investments intending to serve the emerging U.S. market.
China’s LNG demand growth and U.S. supply growth can be helpful to Korea
The emergence of U.S. LNG supply is clearly good for both China and Korea, increasing the amount of LNG on the market, providing supply on more flexible terms, and introducing a new pricing scheme to diversify purchases. Less obvious is the effect of China’s rapid LNG demand growth on Korea.
■ Samantha Gross is a fellow and director of the Energy Security and Climate Initiative. Her work is focused on the intersection of energy, environment, and policy, including climate policy and international cooperation, energy efficiency, unconventional oil and gas development, regional and global natural gas trade, and the energy-water nexus. She holds a Bachelor of Science in chemical engineering from the University of Illinois, a Master of Science in environmental engineering from Stanford, and a Master of Business Administration from the University of California at Berkeley. She has been a visiting fellow at the King Abdullah Petroleum Studies and Research Center, where she authored work on clean energy cooperation and on post-Paris climate policy. She was director of the Office of International Climate and Clean Energy at the U.S. Department of Energy. Prior to her time at the Department of Energy, Gross was director of integrated research at IHS CERA. She managed the IHS CERA Climate Change and Clean Energy forum and the IHS relationship with the World Economic Forum. She also authored numerous papers on energy and environment topics and was a frequent speaker on these topics.