January 2021, Vol. 248, No. 1
Features
Future Looks Bright for LNG in Post-COVID-19 Era
By Nicholas Newman, Contributing Editor
Before COVID-19, global gas consumption growth reached a record 2.3% and trade-in liquefied natural gas (LNG) grew 13% in 2019, driven by increased demand from South Asia.
At the same time, 11 new LNG terminals were commissioned in the U.S., Africa and Russia, bringing total regasification capacity to 115 trillion cubic meters per year. And yet, global trade in LNG was characterized by low prices and a supply glut.
The onset of COVID-19 caused a decline in gas demand of around 4% with a similar decline in the LNG trade. Most forecasts expect gas demand to recover in 2021 to pre-pandemic levels. But what happens thereafter?
One scenario expects the gap between supply and demand to widen thanks to new LNG export facilities, direct competition from new gas pipelines as well as increased market penetration by renewable energy in the power sector. These factors would keep price and profitability low.
In contrast, statisticians at Statista expect global demand for LNG to rise from 338 million metric tonnes this year to at least 446 million metric tonnes by 2025, fostered by affordability creating new market demand, environmental policies, fuel switching and economic growth.
This feature highlights some key demand and supply factors in LNG’s resurgence from the International Energy Agency (IEA) Gas 2020 report; the future of LNG looks bright in the coming years after coronavirus.
Essentially, worldwide demand for LNG, especially in the Asia-Pacific region, is expected to grow over the next five years driven by increased consumption by industry, chemical manufacturers, power generators and transportation.
Industrial Sector
According to IEA, as industry switches from coal, fuel oil and diesel, demand for gas will increase by about 2.5% per year to 2025. Asia-Pacific countries, China, India and Southeast Asia, will account for the lion’s share of rising demand.
In parallel, gas producing countries and regions including the United States, Russia, North Africa and the Middle East will drive demand for gas as a feedstock for making various fertilizers and chemicals, for both domestic and foreign markets.
Gas-to-chemical plants produce high-value chemicals such as methanol, ammonia, ammonium nitrate and urea. IEA’s research finds that fertilizer is the driver of demand, with an average growth rate of 3.5% per year to reach 100 Bcm plus in 2025.
India’s urea production is expected to account for around 30.1 mtpa of imported LNG by 2025, thanks to subsidies boosting domestic production of fertilizers and policies to cut imports of urea.
The expansion of methanol production, especially in the United States, Russia, North Africa and the Middle East, increases the demand for feedstock which, in turn, could account for as much as 30% growth in demand for gas in this subsector.
Thanks to increasing competition from renewable energy and gas displacing “King Coal,” demand for gas by the power sector is expected to be just 1.3% or half that of the past decade.
Even in rapidly growing economies such as the Middle East, South Asia and Southeast Asia, demand for gas power generation has slowed thanks to increasing competition from renewables and energy storage.
Transport
LNG as a fuel for transport is likely to grow by an average rate of 2.6% with the Asia-Pacific regions driving growth. Heavy-duty vehicles and shipping drive growth in demand. Indeed, oceangoing shipping demand for LNG could increase tenfold to 10 Bcm by 2025.
In 2019, total natural gas production reached just over 4,000 Bcm according to the International Gas Union Gas Report 2020. North America, Europe, Russia, the Middle East and Asia-Pacific regions, including Australia, were the main production centers.
North America
Last year, North America alone accounted for 28% of global gas production. Output is expected to continue to grow at around 1.5% per year until 2025. At least 70% of the increase in gas output is destined for the LNG export facilities coming online along the Atlantic and Gulf of Mexico coasts.
Likewise, Canadian output is forecast to increase at 3% per year to reach 19 Bcm, thanks to rising production in the Montney Shale fields in northeast British Columbia and northwest Alberta in anticipation of completion of LNG export facilities on British Columbia’s Pacific coast.
In contrast, Mexico’s output is expected to decline in coming years, a consequence of aging fields, mismanagement and lack of investment and know-how to develop new fields.
Euro-Asia
Gas output is expected to grow by 1.8% per year to reach 1,030 Bcm in 2025. Russia will account for some 70% of this region’s growth, which will feed recently completed and planned export pipeline and LNG projects targeting the Chinese market.
In central Asia, Azerbaijan output is being expanded by 30% in readiness for completion of the Trans-Adriatic pipeline system in 2021, which will transport gas from the Shah Deniz offshore field in the Caspian Sea to new markets in the Balkans and southern Europe.
Middle East
After North America, the Middle East combined with North Africa is the second-largest producer of natural gas in the world. And, it is the Middle East that will see the fastest rate of growth in gas output at 2.4% per year to reach 790 Bcm in 2025.
Three-quarters of the forthcoming net production increase will come from Saudi Arabia, Iraq, Iran, Israel and Qatar. Most of the increased output will meet domestic and regional demand, except for Qatar, which will boost LNG exports.
Asian Pacific
IEA expects gas output to rise from 637 Bcm in 2019 to 676 Bcm in 2025 in this long-established gas producing region. Steady declining gas output by traditional producers such as Indonesia, Malaysia, Myanmar and Thailand are expected to be compensated by China, which plans to boost gas production by 54 Bcm per year from its shale fields.
Further south, the world’s number one LNG exporter, Australia, expects output to plateau at some 150 Bcm per year. Thanks to development of several ongoing deep-water gas projects, India expects to increase gas output by approximately 12 Bcm to 2025.
Africa
Africa is home to the fastest growth in gas output at some 5.6% per year, to reach 295 Bcm in 2025. Nigeria, Angola and Tanzania, the mainstays of African gas production, are being joined by new production and LNG export facilities in Mozambique, Nigeria and Mauritania-Senegal.
Europe
Except for Norway, European gas output is expected to decline by a whopping 40% by 2025, due mainly to production declines in maturing North Sea fields and the closure of the Netherlands giant Groningen gas field.
The recently discovered North Sea Glendronach and Glengorm fields, though welcome, will be insufficient to offset production declines elsewhere.
Norway’s gas production, unlike the rest of Europe, is expected to remain stable at around 120 Bcm per year, thanks to development of new fields in the northern North Sea region, which will offset declines in production from southern North Sea fields.
Equinor’s LNG export development at Hammerfest is one of the world’s most northerly LNG export projects.
One thing is clear: as the world comes out of COVID-19, world demand for LNG is expected to improve significantly, and it is this that explains the continuing investment in new LNG export facilities and new gas pipelines.
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