Clyde Russell, Reuters

South Korea’s planned pivot away from coal and nuclear toward LNG and renewables appears to be another blow to the narrative that coal’s best hope is growth in Asia.

A draft policy paper released by South Korea’s energy ministry on Sept. 6 outlined plans to boost the country’s electricity generation by between 4.7% and 9.5% by 2030, using mainly LNG and renewables.

Coal currently makes up about 40% of South Korea’s power generation and nuclear about 30%, meaning that a shift away from those two will require massive investment in gas-fired plants, as well as wind, solar and hydro.

Newly-elected President Moon Jae-in wants renewables to generate some 20% of the nation’s power by 2030, up from 5% now.

The draft paper was light on details, but did include plans to close seven old coal-fired plants by 2022, and halt construction of new coal and nuclear generators.

Using LNG to fire electricity is about 40% more expensive in South Korea than coal or nuclear fuel, given that it faces import taxes that aren't levied on the other two.

Removing the tariff on LNG imports would go some way towards making it more competitive with coal, but it appears that much of the move to cleaner power in South Korea is driven more by public concerns over pollution and safety, rather than cost. However, lower LNG prices are certainly helping boost both use of the fuel and its appeal to politicians and the public in countries across Asia.

Spot Asian LNG prices have plummeted since the January 2014 high of $20.50 per million British thermal units (mmBtu), and were at $6.10 in the week that ended Sept. 1.

Flexibility Is Key

The price decline has been mainly because of the rapid increase in capacity in Australia and the U.S., with 14 new LNG plants being built over the past five years. The last of these are scheduled to begin production next year.

This expansion of LNG capacity, which stood at 340 million tonnes at the end of 2016 and will rise another 114 million tonnes in the next two years, has altered the market’s dynamics.

The major buyers, Japan, South Korea and China, are increasingly moving away from long-term, oil-linked contracts to shorter term or spot deals, priced against a variety of indexes or even U.S. Henry Hub natural gas futures.

This new flexibility has further increased LNG’sappeal to consuming countries and may encourage them to plan to use more of the fuel, just as South Korea is currently doing.

China, currently the world’s third-biggest LNG buyer behind Japan and South Korea, also aims to cut the share of coal in its energy mix while boosting the use of natural gas.

And LNG appears to be winning battles against coal elsewhere in Asia, with countries such as Sri Lanka, Bangladesh and Pakistan planning to expand regasification capacity in order to use more of the fuel.

Overall, what the South Korean energy plan shows is that LNG and renewables are increasingly beating out coal, a trend likely to accelerate if LNG prices remain around current levels and renewables continue to become cheaper.

South Korea, China and India all have policies that are anti-coal to varying degrees.

For LNG producers, it appears there is light at the end of the tunnel, with the current oversupply of fuel likely to clear in years ahead.

There may even be enough optimism emerging to support consideration of a new wave of investment, but would-be developers will have to realize that the model of the past, with long-term offtake agreements underwriting multi-billion dollar projects, is probably a thing of the past.

If LNG producers can be more flexible, the opportunities are increasing for them to take more market share away from coal.