The LNG Freeze Limbo: How the US Export Pause is Reshaping Global Gas Dynamics
The Biden administration recently suspended granting permits for new liquified natural gas (LNG) imports, which will likely have major impacts on global energy security, especially for the European Union (EU). The move comes amidst growing protests against the Biden administration over its lacklustre plan to make a swift transition to green energy ecosystems. As per the White House, the decision aims to address domestic health concerns, such as increasing pollution near export facilities. However, the timing of the decision raises serious concerns, especially as the US’ European allies grapple with energy shortages since the Russian invasion of Ukraine 2 years ago.
The EU has been greatly dependent on LNG exports from the US in dealing with energy shortages following its decision to stop Russian exports. For instance, in the first half of 2023, the US exported more liquefied natural gas than any other country – 11.6 billion cubic feet a day. That same year, 60 per cent of US LNG exports were delivered to Europe and 46 per cent of European imports came from the US. This abrupt decision by President Biden, prioritising domestic concerns over international energy security and stability, is a long term challenge for US allies in Europe, as well as in Asia.
Despite the EU having fairly dealt with the energy shortages, a potentially long, harsh winter season later this year could further complicate the entire scenario, given the strong correlation between weather and gas prices. Winter conditions are, thus, likely to increase LNG demands, thereby increasing gas prices. Hence, shutting down gas exports to Europe is likely to accelerate geopolitical risks. This would imply diverting economic supply by the EU for Ukraine to deal with the impending energy crisis.
Many of the developing economies in Asia have traditionally been heavy consumers of coal and fossil fuels, primarily due to a lack of infrastructural capabilities to harness renewable sources of energy. Early LNG developments, especially in South East Asia were spurred on by the 1973 oil shock, which brought the need to diversify away from Middle Eastern oil for power generation. Consisting of many developing economies, countries in Asia wanted to rely on a stable and efficient partner to develop their energy ecosystems running on a fair share of LNG exports. Being the largest exporter of LNG in the world, the US was seen as “the reliable partner.” Hence, the recent announcement by the White House has been taken seriously in Asia, given that it might hinder the progress of capacity expansion projects in the region.
Moreover, one of the US’ strategic allies in the region, Japan, could be hit extremely hard by the recent development, given that it is the world’s second-largest purchaser of LNG, with a huge proportion of the imports coming from the United States. Several Japanese companies, especially JERA, have been foundation buyers of LNG export projects and this announcement is likely to hinder their business prospects in the present and the future. Moreover, the future implications of the pause are even more disastrous for the other allies of the US, especially smaller countries like the Philippines, which is currently undergoing energy shocks. The Philippines relies heavily on the electricity and natural gas acquired from the Malampaya gas field. This reserve is expected to run dry in 2027, causing an energy crisis. The nation must now choose between transitioning to renewable energy or continue to rely heavily on the exploration of conventional energy sources which would make them drift further apart from their commitments towards cutting down carbon emissions. The leadership in Manila initially looked to the United States to provide initial relief over its impending energy crisis by importing LNG reserves from the US. However, the latest White House decision will very well make the Philippines’ political leadership exhibit signs of perplexity and look for other alternatives as the Southeast Asian nation continues to grapple with an ongoing energy crisis which is likely to turn worse in the upcoming years.
While the decision might highlight the US’ decision to deal with environmental concerns and climate change issues, the abruptness of the decision is likely to raise serious doubts among the allies over Washington’s reliability to help them cope with the ongoing energy crisis, made worse by a sluggish global economy in the aftermath of the COVID-19 pandemic. The move is likely to lead its partners to export LNG from other countries, which have a higher profile of emitting carbon emissions than the US.
This may also prompt countries to rely heavily on the use of coal and fossil fuels, thereby reversing the trend of actively exploring cleaner energy alternatives. With the global community facing an incoming climate emergency, substantial hope was placed on developed, industrialised countries of the north to create a strong base for the developing economies of the global south to make a transition towards cleaner energy ecosystems.
The US, with one of the largest reserves and the largest exporter of LNG, was seen as the “responsible leader” to effect this transition and, at the same time, stand shoulder to shoulder with struggling economies to deal with the contemporary energy shortage predicament. With ongoing geopolitical crises, the perception of the “pause” being indicative of breaking commitments to international partners and allies, cannot be undermined, in a year that is likely to decide the fate, political will, and the “ability to lead home and abroad amidst challenges” of the incumbent US president.
Featured image by Maciej Margas: PGNiG archive, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=90448259
Sinking shores and rising concerns: the environmental fallout of sea sand mining
Urbanisation is one of the contemporary era’s defining trends, with urban populations previously comprising 29% of the world’s inhabitants in 1950, as compared to 56% today and a predicted 70% by 2045. The astounding influx of populations into urban areas is accompanied by large-scale construction projects for infrastructure, industrial, commercial, and residential developments, which raises environmental concerns at various levels. One concern pertains to the large amounts of sand needed as a key ingredient of concrete and asphalt. In 2021, the United States, Australia, Malaysia, the Netherlands, and Germany were the largest net exporters of sand, while China, Canada, Japan, Singapore, and Italy were the largest net importers, driven by high rates of urban construction and land reclamation.
The high demand for abundant and easily accessible sand has prompted the need for sea sand mining, which involves the extraction of sand from ocean floors. However, this increasingly prevalent practice brings significant correlated environmental issues and ecological disruption. Extraction activities disturb the delicate balance of marine habitats, destroying coral reefs, seagrass beds, and other essential marine organisms. These ecosystems play a crucial role in maintaining biodiversity, providing food sources, and protecting coastal areas from erosion and storm surges. The destruction of these habitats can lead to the loss of species, damage to coastal areas, and increased vulnerability to natural disasters. Alongside habitat destruction, sea sand mining also contributes to climate change, in that the extraction process releases large amounts of carbon dioxide into the atmosphere, mainly through the use of heavy machinery and transportation. Additionally, the removal of sand from coastal areas can disrupt the natural sediment flow, altering coastal dynamics and increasing the risk of erosion and flooding. These changes have huge implications for the stability of coastal ecosystems, the livelihoods of coastal communities, and the overall resilience of coastal regions in the face of climate change impacts.
Recognising the detrimental effects of sea sand mining, Indonesia banned exports of sea sand in 2003 and consolidated the ban in 2007 with regulations against illegal shipments. Prior to the ban, Indonesia was Singapore’s main supplier of sea sand for land reclamation, shipping more than 53 million tonnes on average per year between 1997 to 2002. Sand mining, coupled with persistently rising sea levels, had caused several islands in the Thousand Islands regency – located north of Jakarta – and the Riau Islands to sink underwater.
However, in late May, Indonesia lifted the ban in desperate hopes of attracting economic benefits to the country. This move comes a few years after Malaysia banned sea sand exports in late 2019, which complicated Singapore’s ambitious land reclamation plans. After Indonesia’s 2003 ban, Singapore turned to Malaysia to import sand, which by 2021 comprised nearly 63% of Singapore’s sand imports. For this reason, Malaysia’s recent ban gave Indonesia a window of opportunity to reattract revenue from sand exports to the region, especially to supplement Singapore’s expansion plans. Mining permit holders are now permitted to collect and export sea sand, provided that domestic demands have been met. Environmentalists, including Indonesia’s former Maritime Affairs and Fisheries Minister, Susi Pudjiastuti, have condemned the reversal of the sea sand mining ban. Greenpeace Southeast Asia labelled the move as ‘greenwashing’, inasmuch as the Indonesian government claims their decision will aid in improved sustainable marine resource management and control sea sedimentation; yet, activists believe the new regulation will only ‘further enrich oligarchs’ and ‘increase state income from the fisheries sector’. This is especially true insofar as the potential for food scarcity, as sea sand mining will erode coastal communities’ primary source of sustenance – the sea – while prioritising commercial exploitation and extraction of marine resources.
Addressing the negative impacts of sea sand mining requires a comprehensive approach to sustainable urbanisation, industrial practices, and environmental management. This includes promoting alternative construction materials, implementing stricter regulations on sand extraction, and investing in research and innovation for sustainable infrastructure development. Additionally, it is crucial to raise awareness among policymakers, industry stakeholders, and the public about the environmental consequences of sea sand mining and the importance of adopting environmentally responsible practices.
Image rights: "Sand Extraction at Cliffe Fort" by Shiro Kazan
Dire Straits: China’s energy import insecurities and the ‘Malacca dilemma’
In 2003, then President of China Hu Jintao named China’s energy imports passing through south-east Asia as the “Malacca dilemma”. The dilemma refers specifically to the Strait of Malacca, 1,100 kilometres in length and at its narrowest point only 2.8 kilometres wide, which has been a persistent source of vulnerability for the Chinese economy. Located between Malaysia, Indonesia, and Singapore, this strait is a transit point for around 40 per cent of global maritime trade and, perhaps more consequentially, 80 per cent of China’s energy imports. As the main shipping channel between the Indian and Pacific oceans, this connects the largest oil and gas producers in the Middle East with their largest markets in east Asia and is a strategic chokepoint for the 16 million barrels of oil that pass through daily. The Strait of Malacca is therefore critical to China’s energy production and wider economy, yet is not under Chinese control. What makes this shipping route a particular insecurity for Beijing, and what is being done to mitigate against it?
Major risks
China’s reliance on imported hydrocarbons for energy production, mostly on oil, is at the root of this insecurity. To fuel continued industrial development, energy consumption will increase rapidly alongside a widening gap between domestic energy supply and demand- in 2017, China surpassed the United States as the world’s largest importer of crude oil. Around 70 per cent of the country’s oil requirements come from imports, with analysts estimating this dependency will increase to 80 per cent by 2030. China is thus vulnerable to external shocks, whether in the price of oil or in its supply. That the vast majority of this oil supply passes through the Strait of Malacca chokepoint adds to Chinese evaluations of a precarious overreliance.
Geographically, the strait’s narrow span is a particular threat. With strong regional security actors in Malaysia, Indonesia, and Singapore added to the projection capabilities of India or the US, the risk for China is that a country or group of countries could easily control the strait and its flows. The Indian navy is notably building its presence in the area with its base in the Great Nicobar Islands, largely in response to China’s maritime Belt and Road Initiative projects. Additionally, Singapore is a major US ally that frequently participates in joint naval drills and is located at the eastern mouth of the strait. There is a strong possibility that states other than China can control the strait and greatly hurt the Chinese economy if desired, due to its high imported oil dependence.
South-east Asia is also particularly prone to piracy. A total of 134 separate piracy incidents were identified in the Strait of Malacca in 2015, with oil tankers among those targeted. Malaysia, Indonesia, and Singapore have been able to curb this issue to a large extent, but ships will still face insurance premiums on piracy when passing through the strait. Whilst this remains a background issue when compared to China’s oil import dependency and the strait’s potential for blockades, there is an ever-present risk of losing assets to piracy.
If access to the Strait of Malacca was hindered by piracy or indeed by other states, the economic impacts would be colossal. Beyond short-to-medium-term adjustments in the Chinese economy, a shifting of supply to using longer routes through the alternative Lombok or Makassar straits would add an estimated $84 to $250 billion per year to shipping costs. Rerouting one of the most important shipping lanes would gridlock global shipping capacity and, highly likely, increase energy costs worldwide. The economic upheaval as a result of the 2021 Suez canal blockage illustrates this strongly, yet would pale in comparison to a blockage of the Strait of Malacca.
Forecasting scenarios
The above risk factors thus place China in a precarious position regarding the strait. Whilst states blockading an open seas shipping lane may seem fanciful at the moment, China’s ‘Malacca dilemma’ could become a reality very quickly, especially when considering a change in Taiwan’s status quo. Taiwan is geographically far from the strait but if tensions were to increase over its status, the Strait of Malacca could see a greater security presence in response. Tangibly the US security guarantee to Taiwan means in the event that Taiwan was invaded, or even blockaded as a precursor to invasion, the US could impose an analogous blockade in the Strait of Malacca. China’s vulnerability regarding this strait leaves it open to some proportional responses should it grow more assertive in regional security. The prospect of greater American or US-allied control over the Strait of Malacca is likely in a hypothetical wartime scenario.
On allies, the wider Indo-Pacific region is seeing greater security cooperation as a reaction to increasing Chinese presence. The recent AUKUS military alliance between Australia, the United Kingdom, and the US entrenches American security interests in the region and provides new capabilities for Australia. The Quad grouping between Australia, the US, India, and Japan does not yet have a concrete security element, but could rapidly become an important player in the Strait of Malacca if the threat perception from China changes. Overall the expectation is for these budding Indo-Pacific alliances to gain a stronger strategic focus on the Strait of Malacca and the oil passing through it, critical to China’s economy.
Supply chain mitigation
Beijing is attempting to decrease its vulnerability to the risks and scenarios identified above. Above all other strategies, the China-Pakistan Economic Corridor (CPEC), a part of the Belt and Road Initiative, seeks to mitigate against the ‘Malacca dilemma’. CPEC is an opportunity for China to have an access point to the Indian Ocean through the construction of a new pipeline from western China to the new port of Gwadar in Pakistan. The overall infrastructure investment is valued at $62 billion, with the Gwadar port expected to be fully operational between 2025 to 2030. However, CPEC faces various problems. The difficult topography of the Himalayas means high transit costs for the pipeline, far beyond that of shipping through the Strait of Malacca. Passing through unstable regions adds to the logistical difficulties, with terrorist activity reported in regions the CPEC passes.
The recent China-Myanmar Economic Corridor (CMEC) can be evaluated in a similar manner. The Kyaukpyu Port developed by the Chinese government will send 420,000 barrels of oil a day via the Myanmar-Yunnan pipeline. This nevertheless pales in comparison to the 6.5 million China-bound barrels per day that pass through the Strait of Malacca. In addition, Myanmar’s military coup and the future possibility of high-intensity civil war puts CMEC in peril. Chinese investments have been damaged, with serious doubts about CMEC’s security evidenced by fighting along the infrastructure route.
It is therefore clear that while China is developing alternatives to the Strait of Malacca, these remain woefully inadequate and there is no single replacement for the importance of the strait. Because of their respective political instabilities, ensuring that CPEC and CMEC are successful can only be one part of a solution. Diversifying away from crude oil shipping is another, and land-based pipelines will continue to be developed with central Asian countries and Russia. Of course, avoiding foreign control of the Strait of Malacca is preferable, but China is beginning to hedge on other sources for its imported oil.
In summary, it seems likely that China will continue to heavily depend on the Strait of Malacca to meet its energy needs. The strait remains a vulnerability, especially in the regional context of increasing security competition with other states. Various mitigating measures are being taken to lessen the impact of any change to this strategic chokepoint, but no cure-all solution exists. The geographic production centres and transit lanes for oil are one of the most significant issues for China and its economy and are sure to command the attention of all parties involved.
Image credit: dronepicr via Flickr
China’s push for hydrogen energy: The power of ambition for green infrastructure
In March 2022, China announced its target to produce approximately 200,000 tonnes per year of green hydrogen and at least 50,000 hydrogen-fuelled vehicles by 2025 to supplement its target of reaching net-zero carbon emissions by 2060. This comes after a huge push for hydrogen use during the 2022 Winter Olympics in Beijing. With China being the world’s largest producer of hydrogen at 33 million tonnes annually—80% being grey or blue hydrogen, widespread usage of green hydrogen is anticipated for China’s energy infrastructure.
In understanding hydrogen, there are three main forms: grey, blue, and green. Grey hydrogen is generated using fossil fuels and other high carbon-emitting sources and blue hydrogen is produced using low carbon-emitting sources such as steam methane reformation with Carbon Capture, Usage and Storage (CCUS) or other fossil fuels with CCUS. On the other hand, green hydrogen is made through the electrolysis of renewable energy sources and emits no carbon emissions.
The success of China’s move towards green hydrogen will depend on whether it can geographically connect its renewable-rich regions in the western provinces to the high hydrogen demand areas on the coast in China’s eastern provinces, as well as efficiently and cost-effectively store hydrogen during periods of high production yet low demand for green hydrogen energy. For example, while energy supply of hydrogen produced from solar energy sources usually outweighs demand during the summer months, energy demand rises during winter months due to higher electricity needs—such as for heating—and lower solar energy generation on account of shorter days during the winter. For this reason, green hydrogen energy storage is crucial to meet mismatched demand and supply periods.
In terms of transportation, hydrogen can be transported in a variety of ways depending on the transportation distance. For shorter distances, retrofitted pipelines for high-pressure gases or natural gas blending are the best options. Currently, China has two pure hydrogen pipelines in place—although both are under 500 kilometres—and one hydrogen-natural gas blending pilot project. For longer distances, hydrogen could be shipped in the form of ammonia, gas tanks, liquefied, or through retrofitted subsea transmission pipelines. However, converting hydrogen to ammonia or cryogenic liquid is still extremely expensive and nascent in terms of technology, especially as liquid hydrogen technology is only used in China’s aerospace and defence sectors. This also poses a problem for hydrogen storage in the form of liquid.
Another option is underground storage within depleted oil and gas reservoirs, salt caverns, or aquifers. However, China’s natural storage options are limited; thus, there is large scale investment into developing underground gas storage across China. Hydrogen can also be stored through gaseous storage and tube trailer technologies; however, steel containers used in China for hydrogen storage have a lower pressure capacity than that used in Europe, North America, Japan, and South Korea. Hydrogen regulations must therefore be amended to improve China’s competitive hydrogen storage ability.
While challenges for transportation and storage persist, ambition for green hydrogen energy usage across China is growing. The country now has more than 250 hydrogen refuelling stations, making it the country with the highest number of hydrogen refuelling stations globally. Moreover, investments are being poured into green hydrogen infrastructure and technology solutions in China. There is no doubt that in due time, China will be a key player in the global hydrogen industry.