IEEJ: April 2013 All Right Reserved
Special Bulletin
A Japanese Perspective on the International Energy Landscape (125)March 29, 20132012 Global LNG Demand (Imports) Down 1.9% to 236 Million Tonnes
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, Japan
A remarkable change has emerged in the global liquefied natural gas (LNG) market.
According to “The LNG Industry in 2012” released recently by the GIIGNL international group ofLNG importers, global LNG demand (imports) in 2012 totaled 236 million tonnes, down 1.9% fromthe previous year.
Global LNG demand (imports) had expanded steadily before 2012. Even in 2009 when
global demand for natural gas turned down on a global economic slump following the 2008 Lehman
Shock, LNG demand continued rising. Nevertheless, LNG demand ended a long-term upward trend
last year. What factors were behind the downturn?
Specific factors can be found through an analysis of regional demand trends. A direct
factor behind the global LNG demand fall in 2012 was an extreme demand depression or asubstantial demand fall in Europe. European LNG demand (imports) in 2012 plunged 27% from theprevious year to 47.47 million tonnes. LNG imports declined 16% to 14.46 million tonnes in Spain,the largest European LNG importer, 44% to 10.38 million tonnes in the United Kingdom, the second
largest, and 32% to 7.17 million tonnes in France, the third largest. Major European LNG importers
substantially reduced imports.
The biggest factor behind the substantial reduction in European LNG demand (imports)
was an overall energy demand depression amid an economic slump. While the global economy
expanded 3.3% in 2012, with the Organization for Economic Cooperation and Development
boasting a growth rate of 1.3%, the European Union posted a contraction of 0.4%, according to theInternational Monetary Fund. The economic slump led to the overall energy demand plunge. Earlier,
however, demand for natural gas as a clean energy source had been invulnerable to any generalenergy demand depression. Nevertheless, natural gas/LNG demand posted a large drop. There was areason for the change. The reason is that gas/LNG has been put into a disadvantageous position amida competition between energy sources.
The first important point is gas's relationship with coal. Europe has seen gas losing themarket to coal, completely opposite the situation in the United States. This represents a direct
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IEEJ: April 2013 All Right Reservedconsequence of the U.S. shale gas revolution, which has led gas prices to fall amid a looser
supply-demand balance and allowed gas to replace coal as fuel in the electricity generation sector inUS, encouraging coal to flow out of the United States into other markets. In Europe, the market
share is still large for gas whose prices are still linked to oil prices. As a result, gas prices in Europe
are higher than in the United States, standing at $9-10 per million British thermal units. The inflowof cheap coal into Europe was combined with slack carbon dioxide prices to put natural gas in adifficult position in the power generation fuel market.
The second important point is gas's relationship with renewable energy. As is well known,
the promotion of solar, wind and other renewable energy sources in Europe has been making rapid
progress under policy support measures including the feed-in-tariff system. The competitive
European power generation fuel market often has a “merit order system” where cheaper fuels may
be primarily put into the market until a supply-demand equilibrium is achieved. Nuclear energy andcoal may be selected ahead of natural gas. In addition to the abovementioned coal consumption
expansion, the policy-backed increase in renewable energy's presence exerts great pressure on
natural gas.
Anyway, natural gas demand, sandwiched between an economic slump and growing coaland renewable energy consumption, has plunged, resulting in a substantial drop in LNG demand(imports). Furthermore, none of the abovementioned factors are likely to change dramatically in theimmediate future. We are now required to take note of the high possibility of the European gas
market remaining in a severe environment.
While European LNG demand has slackened, the Asian LNG market has continuedexpanding. Asian LNG demand (imports) in 2012 expanded 9.2% from the previous year to 167
million tonnes. All Asian LNG importing countries scored increases. Particularly, Japan, the world's
largest LNG importer, boosted its LNG imports 11.4% to 88.08 million tonnes to make up for a steep
fall in nuclear power generation. China, the third-largest Asian LNG importer, increased its LNG
imports 12.2% to 14.65 million tonnes.
As the substantial Asian LNG demand growth coincided with the sharp European demand
decline, Asia's share of the global LNG market expanded to 71% in 2012 from 64% in the previousyear. Asia had originally been the center of the global LNG market and has increased its weight
further. Given European and U.S. conditions, the trend is expected to continue or accelerate.
Therefore, how the Asian LNG market will develop and how various Asian LNG market problems(including the “Asian premium on LNG prices”) will be addressed have become Asian and globalproblems.
Even in the Asian LNG market, the economic environment and the competition between
energy sources will affect demand, as indicated by the European case. In this sense, ensuring the2

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price competitiveness of LNG against other energy sources from the medium to long-term viewpointin Asia will be important for the sustainable development and expansion of LNG demand andmarkets. Efforts to realize the sound development of the Asian LNG market may be a key futurechallenge for governments, companies, importers/consumers, exporters/producers and all otherparticipants and stakeholders in the Asian LNG market.

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