Before the word “COVID” entered our lexicon, a booming U.S. shale gas sector was forecast to bring a surplus of new Liquefied Natural Gas (LNG) supply onto the global market.
Then the world began locking down its economies, which brought historic low oil and gas prices as demand crashed. This meant that investment in LNG production and export facilities became less attractive. With demand in freefall, U.S.producers began questioning their investment timescales for new LNG export projects. Final investment decisions have been delayed on seven U.S. LNG projects, representing around 14 billion cubic feet per day of potential capacity.
But despite the negative impact of COVID-19, LNG’s market fundamentals have not changed. Demand from Asia, in particular, is expected to continue to grow, and trade demand for LNG is expected to rise by 3.4% each year on average to 2040.
This begs the question: what will happen to LNG prices when this continued demand growth from Asia comes up against tightening supply levels because of delayed decisions on U.S. export facilities?
Around two-thirds of expected growth in LNG demand in the next decade will come from the world’s fastest growing market for LNG imports – namely, China, India, Pakistan, and Bangladesh, a Wood Mackenzie report shows. However, China’s natural gas consumption is expected to grow at 4.2% in 2020 due to the pandemic, the slowest growth rate for five years.
“The coronavirus outbreak has had a major impact on China’s economic, societal, and energy development,” says a report by the oil and gas department at China’s National Energy Administration, according to Reuters.
“Consequently, the growth rate of the demand for natural gas has been suppressed significantly.”
However, even at a mere 4.2% growth, China will still be the biggest importer of LNG. Alongside China, India is expected to dominate Asia’s LNG regasification capacity additions in the coming years, accounting for 60% of the region’s total between 2020 and 2024 − indicating buoyant demand growth.
Asia’s developing economies also look set to increase their energy demand, and low natural gas prices could challenge coal’s dominance as fuel for power generation.
Demand from the rapidly expanding economies of the Asia-Pacific region could be a driving force to generate momentum for a worldwide economic recovery from the effects of the pandemic.
The Power of LNG
So what does this mean for the future of LNG?
While the global response to COVID-19 has impacted short-term demand, expectations are that this is a blip on an otherwise positive, long-term outlook.
Natural gas demand is predicted to fall by around 3% in 2020, then make a robust recovery, according to the International Energy Agency.
“LNG is, and will remain, a high-growth industry based on a growing economy worldwide, particularly in Asia, with a desire for secure, affordable, and cleaner-burning fuels,” Douglas Wharton, vice president of Cheniere Marketing, told the Gastech industry event which was held virtually in 2020.
The decision by U.S. producers to delay new export facilities is understandable given the circumstances, but would also appear to be short-sighted. The industry can only hope that, while the prospect of supply-and-demand forces conspiring to inflate LNG prices in the short-term is very real, it will only be a matter of time before market forces encourage natural gas suppliers to get investment flowing again.
Johnny Wood has been a journalist for over 15 years working in different parts of the world – Asia, Europe, and the Middle East. As well as an accomplished features writer he has edited several prestigious lifestyle magazines and corporate publications.