Our client, an ASX-listed energy exporter, required an analysis of energy policy in the north Asian region of Japan, Korea and Taiwan, including the energy mix and the imposition of energy import taxes or carbon taxes, and an assessment of the potential risk or opportunity these might present to energy export volumes of various types (LNG, thermal coal) to this region by 2035.
North Asia imports almost all its energy requirements and is a large market for a wide range of energy exports. While economic considerations are important, policy developments are now driving the structure of the power sector and therefore energy requirements. Consequently, suppliers of fuels need to be continually informed of these developments and to plan for how these changes are likely to impact demand.
On a market-by-market basis, we constructed an energy trade-off curve, which assessed the cost of each fuel source per unit of electricity generated, including any taxes currently in place. This was overlaid with various policies such as the target energy mix to assess the market prices where fuel substitution could occur on an economic basis.
Also considered was the overall electricity generation demand (our forecast), the current installed capacity structure, power generation units under construction, and the availability of fuel import infrastructure (e.g. LNG regasification plants), to identify other constraints in the system.
Our forecasts identified clear ‘at-risk’ volumes of fuel imports into each market over the period, based on policy developments that would change the market economics. Also identified were obstacles to fuel-switching even if economically attractive, such as lack of infrastructure or power generation capacity of various types. Some markets were forecast to have material changes in fuel utilisation and import volumes, whereas others were less likely to be impacted due to different market structures and electricity/carbon policies.