In the short and medium term, the economic downturn caused by the Covid-19 outbreak has impacted the supply-demand balance of liquefied natural gas (LNG). But, more importantly, what will this "noble" fuel look like, and where does it fit into Vietnam's and the world's energy systems? Here is the experts' take on the situation.
Because the Earth has reacted strongly to small changes in the amount of CO2, methane, and other greenhouse gases in the atmosphere, emissions of these gases must be reduced until the entire system is restored to equilibrium. Net zero emissions imply that all anthropogenic greenhouse gas emissions must be removed from the atmosphere via mitigation measures, reducing the earth's net climate balance after natural sinks and man-made zeros are removed. As a result, humanity will become carbon neutral and global temperatures will stabilize.
LNG's role in a low-carbon energy system:
Countries around the world are increasingly adopting net-zero emissions (NZE) targets to control carbon emissions, develop lower-carbon energy systems, and meet the Paris Agreement on climate change goals.
In its most recent report in 2018, the Intergovernmental Panel on Climate Change (IPCC) demonstrated that net emissions must fall to zero in order to stabilize global temperatures. According to the report, any circumstance that does not include reducing net emissions to zero will not prevent climate change. Under the Paris Agreement, Switzerland, the EU, and many other countries have ratified this target.
In the midst of the global Covid-19 pandemic, 2020 saw an encouraging number of net zero-emissions announcements, including three of the top ten CO2 emitting countries. China, in particular, has declared its intention to become carbon neutral by 2060, while Japan and South Korea have set a net zero emission target for 2050. This equates to nearly half of the world's GDP and roughly half of global carbon dioxide emissions being committed to net zero emissions.
Building lower carbon resilience from Covid-19 and its far-reaching economic impact, as well as progress toward the NZE, necessitate cleaner energy solutions for all sectors, particularly industries with difficult-to-reduce carbon footprints. And natural gas plays an important role.
To achieve the NZE level, Korea, for example, intends to reduce its reliance on coal and increase the share of gas and renewable energy in the national energy mix. As a result, it plans to convert 24 coal-fired power plants to liquefied natural gas (LNG) by 2034 and triple renewable power generation capacity.
Natural gas, whether combined with renewables or used as an energy source in difficult-to-electrify sectors, contributes to lower overall emissions. According to projections, gas and renewables will account for 74% of total energy growth through 2040.
Over the next 20 years, demand for natural gas is expected to exceed 1,200 billion cubic meters (BCM). Non-energy sectors such as industrial (iron and steel production), residential, commercial, and transportation are expected to account for approximately 65 percent of this growth as lower carbon options are replaced.
Switching from coal to gas in the production of iron and steel, for example, could result in a CO2 reduction of up to 36%.
Even through unprecedented volatility, global LNG demand has increased to 360 million tonnes. Despite being modest, the growth reflects LNG's resilience and adaptive capacity.
After the outbreak of Covid-19 in China at the end of January 2020, LNG shipments to the country's ports were diverted to India and South Korea.
As Asia increasingly experiences pandemic-related shutdowns, demand for LNG in Europe is skyrocketing to power the coal-to-gas transition and replace alternative gas sources.
In the first half of 2020, flexible US supplies helped to balance the global LNG market. China's LNG demand recovered as the country made progress in managing the pandemic and shutdowns were reduced.
China's LNG imports increased significantly at the end of 2020, reaching 67 million tons for the entire year - 7 million tons more than in 2019. India increased imports by 11% in 2020 as a result of using lower-cost LNG to supplement domestic gas production. In contrast, major importers Japan and South Korea saw decreases of 4% and 2%, respectively.
Following the Covid-19 outbreak and lower demand for LNG, global LNG prices fell to a record low at the start of the year, but hit a record high in January 2021 due to winter demand, supply disruptions, and restricted infrastructure (due to insufficient capital and technical experts to develop LNG import ports).
The Covid-19 pandemic is also having an impact on future supply investment, with only 3 million tonnes of new supply announced in 2020, far less than the expected 60 million tonnes.
In the short and medium term, the economic downturn engendered by the Covid-19 outbreak has impacted the supply-demand balance for LNG. Closures and stay-at-home orders have slowed construction and completion progress on new LNG liquefaction projects all over the world. The delay is likely to tighten global markets in the medium term.
Global LNG demand is expected to reach 700 million tons by 2040, as demand for natural gas continues to rise in Asia and gains traction in supplying energy to difficult-to-fire industries. As a result, more investment in supply will be required to avoid the estimated supply-demand gap in the middle of the current decade.
Downstream market liberalization, dwindling domestic gas resources, and demand for cleaner energy options have resulted in an increase in the number of LNG buyers and suppliers to the market over the last decade. Global LNG is evolving to provide more options in commercial structures. Long-term contracts worth up to 110 million tons will expire over the next decade. In the face of ever-increasing net zero emissions targets, the LNG industry will need to innovate at every stage of the value chain in order to reduce emissions and play a critical role in powering plants in the difficult-to-reduce carbon industry.
The LNG’s wave in Vietnam started with Politburo Resolution 55:
In recent years, Vietnam has not had to import LNG for power generation, but the government has predicted that the domestic gas supply will not be enough to meet demand, and that imports of this fuel will be necessary in the future (even in the years 2010-2011). As a result, Power Planning VII has identified a list of Son My Power Center gas-electric projects that will use imported LNG fuel.
In the coming years, Vietnam will emerge as one of Asia's most promising liquefied natural gas import markets. The magnitude of the proposed LNG infrastructure and gas power plant projects, as well as the number and diversity of investors expressing interest, are unprecedented in the history of the Vietnam electricity industry.
This surge of interest is bolstered by the Politburo's adoption of Resolution 55 NQ-TW in February 2020 to reorient Vietnam's energy sector development strategy over the next decade, with a vision to 2045.
The resolution has limited the growth of coal-fired thermal power, instead requiring (along with renewable energy) a focus on the rapid development of LNG thermal power plants, while also prioritizing the import and distribution of this fuel with the following goals: Vietnam must import 8 billion m3 of LNG per year by 2030 and 15 billion m3/year by 2045 from the current zero.
According to Vietnam's policy-making practice, the contents of the Resolution are sufficient to serve as a foundation for the development of specific legal provisions that allow increasing the proportion of LNG gas thermal power in the nation's power source structure. This issue is currently being addressed through the development of the National Energy Master Plan for the period 2021- 2030, with a vision to 2050, and the National Power Development Plan for the period 2021- 2030, with a vision to the future. The year 2045 (PDP VIII). The most recent draft of PDP VIII proposes increasing gas-fired thermal power capacity to four times the current capacity (about 7 GW) by 2030, to 28 GW, or 21 percent of total system capacity. The vast majority of these are expected to rely on imported LNG.
Currently, infrastructure for LNG import is being urgently built for gas thermal power projects (mixed gas turbines). Port warehouse projects serving LNG imports, as well as mixed gas turbine plants, are scheduled to begin operations before 2030.
1/ The Thi Vai gas-fired power project chain, which includes a port that imports 1 million tons of LNG per year (equivalent to 1.36 billion m3) and the Nhon Trach 3 and Nhon Trach 4 mixed gas turbine projects with a total capacity of nearly 1,800 MW, which are expected to go into operation in 2023 - 2024.
2/ Son My 1 and 2 gas power projects (Binh Thuan province) with a total capacity of 4,500 MW and using up to 3 million tons of LNG/year are scheduled to begin operations in 2025-2026.
3/ The proposed Bac Lieu gas power project includes a combined gas turbine power plant of 3,200 MW, a floating LNG storage and chemical warehouse with a capacity of 150 - 174,000 m3 of LNG, and the importation of 3 million tons of LNG per year (USA). If everything goes as planned, this project will complete phase 1 by the end of 2023 and the entire project by the end of 2027.
4/ In addition, the Prime Minister has approved a number of LNG gas-fired power projects to be included in Power Plan VII (revised), including the Ba Ria-Vung Tau, Quang Ninh, and Chan May LNG gas power plants. These projects are currently selecting investors for implementation.
