Cutthroat war over the ‘bridge fuel’

Kim Sang-jin
The author is an international news reporter of theJoongAng Ilbo.

The natural gas market is heating up due to the joining of the Middle East oil power Saudi Arabia. The kingdom has been making aggressive investments in liquefied natural gas (LNG) projects amid the global LNG boom that gained further traction by the war in Ukraine. It is betting on LNG’s future being brighter than petroleum’s as a “bridge fuel” during the transition to decarbonization.

The entry of Saudi Arabia backed by its rich oil money amid the hot contest among European and Asian countries over LNG reserves could exacerbate market volatility, unnerving Korea who relies on LNG for nearly 30 percent of its power generation.

Saudi Arabia’s LNG pivot took off last September, when state-owned Aramco bought a $500 million stake in MidOcean Energy, an American company, with an option to increase its stake and interests in the future.

The U.S.-based LNG company has secured interests in three LNG projects in Australia. Last month, it acquired a 20 percent stake in Peru LNG, which had been operated by SK Earthon, SK Innovation’s resource development subsidiary.

Saudi Arabia set its eyes on the United States, the world’s largest LNG exporter, thanks to its fast expansion in natural gas capacity. Aramco is said to be in advanced talks regarding investing in Phase 2 of Sempra Infrastructure’s Port Arthur LNG project in Texas.

When releasing its latest quarterly performance in March, Aramco CEO Amin Nasser said that the world’s biggest crude oil exporter was “in discussion with a number of entities in the U.S. and other regions.” Saudi dominates the oil market together with America and Russia with a capacity to produce more than 100 million barrels a day. It has capitalized on its oil supremacy to influence international politics and economy.

But natural gas is another matter. Saudi Arabia lacks the infrastructure such as the liquefaction plants or regasification terminals that take years to build. Most experts agree that the economic viability cannot be ensured even when Saudis immediately starts facility investments due to the deficiency in technology and knowhow.

Aramco admits that its LNG investments will be targeted mostly abroad. It is aiming to bolster revenue through the sale of the reserves it acquired from stake investments. Saudi Arabia is bolstering its LNG portfolio because the mainstay in fossil fuel is shifting from oil to less carbon-emitting natural gas due to its service in the energy transition to address global warming and climate issues. The demand for the bridge fuel is rising faster than expected amid the slow decarbonization process around the globe. Most are skeptical of the International Energy Agency’s forecast of LNG demand falling about 20 percent by 2030 based on the scenario of attaining the net-zero goal by 2050. According to Shell’s LNG Outlook 2024, global demand for LNG is estimated to surge by more than 50 percent by 2040.

Saudi Arabia’s influence can weaken as the industrial coal-to-gas shift accelerates. A change in power dynamics in the Middle East has already been evident. Qatar has become the rising star thanks to its command over the LNG market. It accounted for 19 percent of global LNG exports, nearly on par with the United States (22 percent) and Australia (20 percent) last year.

Saudis must also confront a formidable regional competitor — the United Arab Emirates (UAE) — in the latecomer group. UAE’s Abu Dhabi National Oil Company is accelerating an LNG project in Ruwais to be active from 2030. It launched a gas consortium with Mitsui & Co, BP, Shell and TotalEnergies.

Saudi Arabia bets that the LNG market will be positioned for long-term growth particularly in Asia and Europe. Demand for the alternative fuel is expected to deepen as European countries rush to shift their LNG sourcing to the United States and the Middle East due to the drop in Russian pipeline deliveries after the Ukraine war.

Korea, where coal, nuclear reactors and LNG are equally responsible for roughly 30 percent of its power generation, must act more aggressively to secure LNG, as it cannot rely entirely on nuclear energy to replace coal to meet the carbon neutrality goal by 2050.