LNG Faces a Tough Period: IGU
Last year was the sixth consecutive year of growing LNG trade, but there are ominous clouds not just on the horizon but already well overhead, according to the International Gas Union's annual report on LNG. In the foreground, the Covid-19 pandemic has directly and indirectly lowered spot and term contract prices for LNG, complicating decisions on new major investments.
The report says the lockdowns that many countries have introduced will "lead to depressed commercial and industrial activity around the world, which will have a negative impact on gas demand throughout this crisis. The current market environment lowers the expectations of seeing a recovery in prices any time before the coming winter."
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Further ahead, LNG faces problems relating to its manufacture, including methane and carbon dioxide emissions along the value chain. And adding to these are a newly-developed set of factors that the gas industry has to contend with: carbon emission policies, taxation and project financing in a zero-carbon world.
Commitments to meet these societal goals may show up in tangible resistance to projects as environmental, social, and governance (ESG) metrics play a further increased role in project sanctions and investment criteria. Institutional risk factors, even among technically- and economically-feasible projects, may block projects, especially up to the final investment decsion. Financial constraints and contingencies will probably make projects less feasible.
In favour of gas, the IGU president Joe Kang says in the report's introduction, it "produces less than 10% of the particulates and 50% less GHG than coal when used in power, 21% less than fuel oil in transport and above 95% efficiency when used to heat homes. The industry continues to improve measurement and reduction of emissions across the full LNG value chain.”
And gas is becoming increasingly common as a transport fuel: thanks in part to international new rules limiting the sulphur content of fuel oil since January of this year, a number of shipowners are ordering LNG-fuelled newbuilds, including VLCCs, containerships, ferries and barges. LNG is also being used for trucks and long-distance road journeys as the European and US networks of LNG and CNG filling stations bulks up.
The comprehensive dataset details all the material changes in the global LNG industry in 2019. The freely available report puts numbers on the upstream, downstream and shipping segments of the markets as gas continues to commoditise and find new applications.
Key findings:
Global LNG trade set a new record last year, reaching 354.7mn metric tons (mt), up 13% on 2018. The US (+13.1mn mt), Australia (+8.7mn mt) and Russia (+11mn mt) added the most capacity but Qatar managed to maintain its position as the largest exporter in the world (77.8mn mt).
China imported 7 MT more and Europe 37 MT more while Japan and South Korea both took less; and Egypt and Argentina swung from LNG imports to LNG exports. Re-exports fell 59% in 2019 as price differences between the Atlantic and Pacific basins fell.
Only three markets saw a drop in export levels versus 2018: Indonesia and Equatorial Guinea received less feedstock gas; and Norway had longer maintenance at Hammerfest owing to low prices.
Asia Pacific continued to grow, exporting a total of 131.7mn mt in 2019, an increase of 7%, mainly from Australia but also from Papua New Guinea.
Despite its gas resource size, the Middle East increased exports by only 2% with small increases from Qatar, the UAE and Oman.
The largest increases in imports were seen in Europe, with the UK, France, Spain, the Netherlands, Italy and Belgium accounting for most of the additional imports (+32mn mt).
Europe re-exported 58% of global re-exports in 2019, and France and Singapore had the highest re-export loadings in 2019, re-exporting 0.6mn mt and 0.4mn mt respectively.
The US continued to contribute significantly to LNG project sanctions in 2019, totaling 30.1mn mt/yr, thanks to the availability of abundant shale gas in the region. In the US, Henry Hub front month prices dropped about 15%, averaging $2.53/mn Btu in 2019 despite liquefaction and power generation demand, as total US natural gas supply increased 10% to 935bn m³ in 2019.
The Marcellus and Utica shales (in the Appalachia Basin) accounted for 45bn m³ of the growth as new pipeline capacity came on line. But associated gas supplies from oil fields have also flooded the US market.
Liquefaction capacity expansion is set to continue in 2020 and is expected to reach 24.35mn mt/yr in capacity additions. Liquefaction capacity is forecast to further expand to 454.85mn mt/yr by the end of 2020, following a record volume of sanctioned projects.
The record volume of sanctioned liquefaction projects is underpinned by the expectation of growing LNG demand globally, creating the need for additional liquefaction capacity. This will also lead to competition to secure engineering, procurement and constructionEPC capacity, as project developers aim to enter the market by the mid-2020s in order to capture growing demand.
As of February 2020, total LNG regasification capacity was 821mn mt/yr across 37 markets, thanks to the addition of six new terminals and three expansions at existing terminals between 2019 and February 2020. Of the existing LNG markets, Bangladesh, Brazil, China, India, and Jamaica together built seven terminals, adding 23.4mn mt/yr in 2019.
The LNG shipping industry kept pace, adding 42 new vessels to a total of 541 active vessels by the end of 2019. The active fleet includes 34 floating storage and regasification units and 4 floating storage units, demonstrating the continued interest in flexible solutions to enable markets to start importing LNG or increase their LNG imports as energy demand grows.
FSRUs have continued to act as a quick enabler for LNG imports. Bangladesh has two such FSRUs to replace declining gas production. Traditional barriers including project siting limitations, environmental and domestic land use requirements and opportunity costs.