SINGAPORE, Dec 9 (Reuters) - Southeast Asia's power sector will tilt away from gas to use more coal by the end of this decade, chipping away at demand for liquefied natural gas as the region of more than 600 million people tries to cut costs to meet soaring electricity needs.
With a wave of LNG projects due to come online this decade, this shift in consumption from a region long expected to be a key growth market could help take some of the heat out of rising Asian prices of the cleaner fuel.
Gas prices in Asia are about five times more expensive than in the United States, driven by demand for LNG from countries such as Japan and South Korea - whose nuclear power sectors are in crisis, and China, where stringent pollution control measures are driving a switch from dirtier coal.
Demand for more coal could also help lift flagging prices of the fuel by at least partially compensating for China's move to cleaner energy sources.
Currently coal accounts for a third of Southeast Asia's energy mix and gas for 44 percent, with the bulk supplied by the region's own gas reserves, according to the International Energy Agency (IEA), which formulates energy policy for industrialised countries.
"People in this region keep talking about green growth, but when I look at the numbers, the growth is not green. It is black as coal," said Fatih Birol, the IEA's chief economist.
Power generation capacity in Southeast Asia is set to rise by 50 percent during the current decade, of which more than half will be coal-fired and only about a quarter will be gas-fired, the IEA said, indicating slow growth in LNG imports.
"Many Asia Pacific countries seem to feel that the advantage of gas is being eroded by the higher price," said Fereidun Fesharaki, chairman of energy consultancy Facts Global Energy.
Thailand, the first Southeast Asian country to import LNG, is only using 30 percent of the 5 million tonne-per-year import terminal that it brought online in 2011 as high prices of the super-cooled fuel have quashed demand.
Spot LNG prices have surged 85 percent in Asia since the Fukushima disaster in March 2011 shut Japan's nuclear reactors and forced it to boost LNG imports to fire up power plants. Coal has slumped 30 percent over the time.
One megawatt of LNG-fired power is currently around twice as expensive as coal-fired power in Asia, according to the IEA.
New LNG supplies from Australia, North America and East Africa set to come online in the second half of the decade could help narrow this gap, but a rise in global LNG demand of around 7 percent a year until 2020 will still result in a tight market, analysts said.
This should keep coal's cost advantage intact, undermining gas demand from Southeast Asian nations that are already saddled with expensive fuel subsidies and huge trade deficits.
Fifteen gigawatt of new gas-fired power generation capacity that will come online across Southeast Asia over the next five years are expected to run at just 70 percent on average, while 20 gigawatt of new coal-fired plants will be running at mostly full capacity, according to energy consultancy Wood Mackenzie.
Malaysia, a major gas exporter which turned to LNG imports to meet rising demand for power in locations far from its gas-producing regions, is constructing five coal-fired power plants as it seeks to curb overseas purchases of the expensive fuel.
Indonesia, for decades one of the world's top LNG exporters but now facing declining output, this month signed its first LNG import deal with deliveries to begin in 2018.
Still, coal is set to remain the dominant fuel in Indonesia, the world's top exporter of thermal coal, as it builds new coal-fired power stations to reignite demand and counter a drop in prices due to softer demand from China.
Wealthy Singapore is the only outlier with a near total dependency on gas, and LNG sales from its terminal hitting 90 percent of its capacity following commissioning earlier in 2013.
Thailand has plans to double the capacity of its LNG import terminal but is in no position to compete for supplies with utilities from Japan, which has deeper pockets and long-standing relationships with sellers.
If planned terminals come online, Southeast Asia's capacity to import LNG could triple to nearly 50 million tonnes per year by 2018. But as long as the price differential favours coal, the outlook for the region's LNG demand will be bleak.
Also, many Southeast Asian governments face less public opposition to burning dirty coal, with surging demand for power and budget constraints eclipsing attention on cleaner air.
"Coal is now making a sneak return," said Fesharaki from Facts Global Energy.
"Sellers of LNG believe the buyers have no choice. But they do, it is coal."