After a record 70 mmtpa of new LNG capacity was sanctioned in 2019, this year and 2021 had at least as much capacity lined up for final approval – instead, there’s a famine, Wood Mackenzie said.
Wood
Mackenzie said last week that developers, cash-strapped by the collapse in oil
and gas prices, have pushed back on capital-intensive pre-FID LNG projects.
But there
are three other factors which pushed pack investments – the first is the
outlook for LNG demand. WoodMac anticipates LNG demand doubling over the next
20 years, driven by Asia’s economic growth and increasing penetration –
particularly where policy supports gas over coal.
The company
stated that its view isn’t dissimilar to Shell’s that the LNG market grows at
four times the rate of oil demand in that period.
Wood Mackenzie forecasts global LNG demand grows by over 50 per cent from 370 mmtpa in 2020 to 550 mmtpa by 2030. Allowing for projects already under development, there’s a supply gap of 102 mmtpa to be met by pre-FID projects which need to be onstream by the end of this decade.
Longer-term,
intensifying interest from policymakers and investors in new technologies,
including green hydrogen and CCUS, casts doubt on the sustainability of demand
growth.
Gas demand
has held up relatively well through the Covid-19 downturn, especially when
compared to oil, but the pace and shape of economic recovery is unclear and so
is LNG demand growth in the next few years. Longer-term, intensifying interest
from policymakers and investors in new technologies, including green hydrogen
and CCUS, casts doubt on the sustainability of demand growth.
Secondly, the rising influence of spot LNG prices on project economics is another factor for pushing back investments. The traditional oil price-linked contracts and firm offtake agreements that have supported the financing of new projects are fading into history.
Many projects today rely on equity lifting, with joint venture partners taking the LNG into their portfolios. The attraction is flexible volumes that can be sold to any buyer and capture the best price.
But it also
means rising exposure to spot LNG prices. Japan spot LNG prices have ranged
from over $11/mmbtu in 2018 to as low as $2.10/mmbtu early this year, underlining
the volatility and risk in running an open spot gas position.
Scrutiny of
carbon intensity is another factor to take into consideration. Environmental,
Social, and Governance (ESG) leapt to the top of the agenda for LNG producers
and buyers alike.
LNG’s track
record on emissions isn’t good. Inert gases including CO2 must be removed
before liquefaction and typically are vented into the atmosphere. Liquefaction
itself is energy intense, usually fuelled by produced gas.
In the future,
the carbon footprint will be one factor determining how attractive an LNG
project is to developers and buyers, and will influence the price it can
command.
New projects
will have to be squeaky clean: developers will seek to electrify the
liquefaction process – renewable where possible – and capture waste gases.
Project economics will also be affected by carbon price assumptions.
Which projects
will fill 102-mmtpa supply gap
First up are the mega-trains of Qatar’s low unit cost North Field East, which should be sanctioned in the coming months. This project on its own will absorb 32 mmtpa, negating the need for new supply from other sources until the late 2020s and pushing out FIDs for projects elsewhere by two to three years. Qatar believes it has another 16 mmtpa up its sleeve at North Field South that it could also develop.
So contestable demand for the rest is 70 mmtpa at best in 2030. A dozen or more projects from Papua New Guinea, Australia, Mozambique, West Africa, Russia, and North America, with a combined capacity of more than 150 mmtpa will be vying for their share, Wood Mackenzie said.
The post Wood Mackenzie: LNG demand doubling over the next 20 years appeared first on Offshore Energy.
Source: LNG World News