The Impact of Unrealistic Net Zero Policies on LNG Shortages

As countries around the world set ambitious targets for net-zero emissions, the energy transition is not picking up pace. However, many of these policies—while well-intentioned—fail to fully account for the complexities of global energy demand and the role natural gas and LNG play in providing reliable, affordable, and secure energy. Unrealistic net-zero emissions policies, particularly those that aggressively phase out fossil fuels without fully developed alternatives, could lead to significant disruptions in the LNG market, exacerbating supply shortages and undermining energy security.

The Role of LNG in Energy Security and Reliability

Natural gas and LNG currently play a crucial role in the energy mix, particularly as a base load energy fuel that helps displace coal and reduce overall emissions. However, many net-zero policies push for a rapid transition to renewable energy sources like wind, solar, and battery storage. While these technologies have proven unsuccessful at meeting demand they have a role to play in long-term decarbonization of the global energy system, they are not yet capable of providing the same level of reliability, scalability, and flexibility that gas offers, particularly in regions that lack robust energy infrastructure or face intermittent renewable energy supply.

Aggressive policies that attempt to phase out gas too quickly can lead to energy shortages, as renewables alone cannot yet fill the gap left by the removal of natural gas. The result is a short-term energy crunch, where demand for LNG outstrips supply, pushing prices higher and causing economic stress for both producers and consumers. This policy can result in political instability around the world. Consumers demand that their governments provide affordable base load energy. Ultimately if they don’t have electricity to power their light switch they won’t care if it is powered by coal or renewables, they will care if they are sitting in the dark.

Investment Uncertainty and Supply Constraints

Unrealistic net-zero timelines are already having a chilling effect on investment in natural gas and LNG projects. As governments push for policies that prioritize renewables and penalize fossil fuels, investors and companies are growing wary of committing to long-term gas infrastructure projects. This underinvestment in new LNG production capacity can lead to supply shortages, particularly as demand for gas remains strong, especially in regions like Asia and Europe.

The result is a classic supply-demand mismatch. While demand for LNG persists, particularly as countries seek alternatives to more polluting fuels, the lack of new investment could constrain the growth of LNG supply, leading to higher prices and greater market volatility. In 2021 and 2022, Europe experienced a glimpse of this scenario, where limited LNG supply and geopolitical factors drove gas prices to record highs, forcing some industries to shut down and increasing the cost of living for millions of people. Italy went from a 2.8 T Euro economy to 1.8.

Disruptions in Emerging Markets

Emerging economies, particularly in Asia and Africa, are still heavily reliant on natural gas and LNG to meet their growing energy needs. For many of these countries, LNG is a cleaner and more efficient fuel that helps improve energy access and supports economic development. However, unrealistic net-zero policies in advanced economies can put pressure on the global LNG market, limiting the availability of affordable gas for emerging markets.

If LNG supply is squeezed by net-zero policies, emerging economies could face severe energy shortages. This could lead to a resurgence in the use of more polluting fuels like coal, as these countries struggle to meet their energy needs. In the worst-case scenario, energy poverty could deepen, reversing decades of progress in improving access to electricity and cleaner fuels in developing regions.

Geopolitical Risks and Supply Chain Vulnerabilities

The current energy landscape, particularly in Europe, has underscored the importance of gas as a strategic commodity. As geopolitical tensions continue to rise, particularly around key gas-producing region…

A Pathway Forward for the Future of Gas and LNG in Asia and Africa

As Asia and Africa continue to grow their economies for their people and will be the fastest-growing region for energy consumption, natural gas and LNG are expected to play a crucial role in their energy future. However, the regions face complex challenges: meeting rising energy demand while navigating the energy quadrilemma of energy security, affordability, sustainability, and access. The trajectory for gas and LNG in Africa and Asia will depend on several factors, including demand growth, policy support, and investments in infrastructure.

Africa and Asia’s Demand Growth: Short- and Long-Term Outlook

Short-Term Demand

In the short term, demand for gas and LNG is set to rise due to the region’s ongoing economic growth, urbanization, and the need for cleaner alternatives to coal and oil. Countries like China, Japan, and South Korea are already major consumers of LNG, while India and Southeast Asian nations are increasingly turning to LNG to meet their growing energy needs. While Africa has been left in the dark.

China is the world’s largest LNG importer, with a focus on replacing coal in industrial processes and heating. Short-term demand is expected to remain robust as the country continues to prioritize energy security and decarbonization.

India has ambitious plans to increase the share of natural gas in its energy mix from 6% to 15% by 2030. In the short term, demand is expected to grow significantly, driven by industrial and power generation sectors, as well as expanding LNG infrastructure.

Southeast Asia is experiencing rapid growth in LNG demand, particularly in countries like Thailand, Vietnam, and the Philippines. As domestic gas production declines and electricity demand surges, these nations are increasingly turning to LNG to fill the gap.

Long-Term Demand

In the long term, Asia’s demand for LNG will be influenced by the pace of the energy transition, the development of renewables, coal and the availability of infrastructure to support gas imports. While LNG is expected to remain an important part of Asia’s energy mix, the region’s long-term outlook will be shaped by several factors:

China’s decarbonization goals could lead to a gradual decline in LNG demand in the long run, particularly if the country accelerates its shift toward coal, renewables, nuclear, and hydrogen.

India and Southeast Asia are expected to see sustained growth in LNG if and when available. If LNG is not available the demand for LNG over the next two decades, will be driven by industrialization, urbanization, and efforts to replace coal with cleaner alternatives. However, the long-term demand trajectory will depend on the region’s ability to develop import facilities of LNG, renewable energy and integrate it into the grid.

Unlocking Demand Potential in South and Southeast Asia

To fully realize the potential of LNG in South and Southeast Asia, several key actions need to be taken:

Infrastructure Development: A major barrier to increased LNG adoption in the region is the lack of infrastructure for import terminals, regasification, and distribution. Many countries in South and Southeast Asia still have underdeveloped gas networks, making it difficult to expand LNG usage beyond coastal regions.

Investment in LNG import terminals and regasification facilities is crucial. Countries in countries like India, Bangladesh, and Vietnam have made progress in developing LNG infrastructure, but more investment is needed to meet future demand.

Improved distribution networks are essential to bring gas to inland and remote areas, allowing industries and power plants to access LNG.

Policy and Regulatory Support: Governments in South and Southeast Asia need to provide clear, long-term policy frameworks that support the growth of the gas sector. This includes establishing favorable regulatory environments, offering incentives for private investment, and setting realistic decarbonization goals that allow for the use of gas as a transition fuel.

Price reforms are also necessary. In many countries, domestic gas pricing is regulated or subsidized, which distorts the market and discourages investment in LNG infrastructure. A shift toward market-based pricing would help attract private sector participation and ensure the long-term viability of LNG.

Financing and Partnerships: Developing countries in South and Southeast Asia often face challenges in financing large-scale energy projects. International financing, public-private partnerships, and multilateral support will be key to unlocking the region’s demand potential.

International partnerships with LNG exporters and energy companies can help finance infrastructure projects and transfer knowledge and technology. Countries like Japan and South Korea, which are already major LNG consumers, can play a significant role in supporting the development of LNG markets in South Asia and Southeast Asia.

Addressing Energy Poverty: Many countries in the region face high levels of energy poverty, with millions of people lacking access to reliable electricity. Expanding LNG use for power generation can help address this issue, providing cleaner and more reliable energy to households and industries.

Affordable pricing mechanisms and targeted subsidies can help ensure that LNG reaches the most vulnerable populations, balancing the need for energy access with environmental sustainability.

Navigating the Energy Quadrilemma: Security, Affordability, and Sustainability

As Asia’s demand for energy continues to grow, the region faces the challenge of balancing energy security, affordability, and sustainability. Natural gas and LNG will be critical in navigating this energy quadrilemma, but the path forward will require strategic planning and investments.

Energy Security

Asia’s reliance on energy imports, particularly in the form of LNG, makes it vulnerable to supply disruptions and price volatility. Ensuring energy security will require diversifying supply sources, building strategic reserves, and investing in domestic production where possible.

Diversifying LNG suppliers is key. Countries like Japan and South Korea have already secured long-term contracts with a variety of suppliers, including Australia, Qatar, and the U.S. Emerging markets in Southeast Asia will need to follow suit, securing diversified LNG contracts to reduce their exposure to supply risks.

Developing domestic gas production can also enhance energy security. Countries like India, Indonesia, and Malaysia have significant untapped gas reserves, and investments in domestic production could reduce their dependence on LNG imports.

Affordability

One of the major challenges for LNG in Asia is its cost, particularly in price-sensitive markets like India and Southeast Asia. As global LNG demand rises, prices can become volatile, making it difficult for developing economies to afford consistent supplies.

Long-term contracts can provide price stability and ensure a steady supply of LNG at predictable costs. Governments and companies in Asia should focus on securing such contracts with major LNG producers.

Developing competitive domestic markets by encouraging private sector participation can also help bring down costs. Market-based pricing mechanisms, transparent regulatory frameworks, and the removal of price controls can stimulate competition and reduce the overall cost of gas.

Sustainability

To meet global climate goals, Asia will need to reduce its reliance on coal and oil while transitioning to cleaner energy sources. LNG offers a cleaner alternative in the short term, but long-term sustainability will depend on integrating renewables into the energy mix.

LNG as a transition fuel: While LNG produces fewer emissions than coal, it is still a fossil fuel. To align with sustainability goals, countries in Asia need to treat LNG as a bridge fuel that supports the transition to renewables, rather than a long-term solution.

Reducing the carbon footprint of LNG through technologies like carbon capture, methane leak reduction, and the use of renewable energy in LNG production can help align LNG with sustainability goals.

Scaling up renewables: To truly navigate the energy quadrilemma, Asia must aggressively invest in renewable energy, including solar, wind, hydro, and storage solutions. Governments should focus on building a complementary energy mix where gas provides backup and stability while renewables take the lead in electricity generation.

A Balanced Approach to Asia’s Energy Future

The future of gas and LNG in Africa and Asia is bright but complex. To unlock its full potential, the regions must address infrastructure gaps, secure investments, and implement supportive policies that balance energy security, affordability, and sustainability. LNG will play a crucial role in the short and medium term as a transition fuel, but the long-term goal must be to integrate more renewable energy sources into the mix, ensuring a sustainable and secure energy future for the region.