Forecasting fast gas growth

Mar 07, 2023

Save to read list Published by Jessica Casey, Deputy Editor LNG Industry, Friday, 09 June 2023 15:30

The shift toward cleaner energy sources, driven by concerns over climate change, is increasing the demand for natural gas, including LNG, as its emissions are lower than other fossil fuels such as coal and oil. LNG is a natural gas that has been cooled to approximately -162°C (-260°F) at atmospheric pressure, causing it to condense and become a liquid. The liquefaction process reduces the volume of the gas by approximately 600 times, making it easier and highly cost-effective for transportation and storage.

The growing demand for energy from emerging economies, particularly in Asia, is propelling the growth of the LNG market because it is a dependable and flexible source of energy that can meet the region's expanding energy needs.1 Due to the abundance of natural gas, particularly in the US, prices of natural gas have fallen, making LNG a more attractive option for many countries looking to diversify their energy sources. The supply of LNG has increased due to the expansion of liquefaction capacities in countries such as the US, Australia, and Qatar, making it more readily available and affordable. Improved liquefaction and regasification processes, for example, have increased efficiency and reduced costs in the LNG industry, making it a more competitive energy source. Government policies and regulations such as subsidies and tax incentives have also contributed to the growth of the LNG market, particularly in countries seeking to reduce their reliance on imported oil and gas.

Global demand for energy is clearly outpacing the development of energy technologies based on solar, wind, tide, and carbon capture and storage (CCS). This requires that the global economy has an energy alternative that will enable sustainable development for the foreseeable future, and natural gas provides such an alternative. LNG is a popular energy source, particularly in countries where natural gas pipelines are not available or where pipeline transportation is difficult or expensive.

Figure 1. Global energy demand, 2025.

LNG is stored in specially designed tanks capable of withstanding extreme cold temperatures and high pressures required to keep the gas in a liquid state. These tanks can be made of a variety of materials including concrete, steel, or aluminium, and are frequently insulated to reduce heat transfer and prevent the gas from evaporating. Onshore storage tanks and offshore FSRUs are the two types of LNG storage facilities. Onshore storage tanks are typically located near LNG import terminals and range in size from small tanks capable of holding a few thousand cubic metres of LNG to large tanks capable of storing millions of cubic metres. FSRUs, on the other hand, are ships that can store LNG and then convert it back to gas for distribution to the local gas grid. LNG storage is an important part of the LNG supply chain because it enables natural gas to be transported and distributed to areas that do not have access to gas pipeline infrastructure. It also enables the storage of natural gas during low demand periods, which can then be used to meet peak demand. According to a market study published by MarketsandMarkets in December 2022, the LNG storage tank market is expected to reach US$20.8 billion by 2027, growing at a CAGR of 7.5% between 2022 – 2027.1

LNG is typically transported by specialised tanker ships designed to transport the liquefied gas at extremely low temperatures. These tankers can be very large, with typical capacities ranging from 125 000 – 175 000 m3 (approximately 33 – 46 million gal.). The LNG is loaded onto the tanker using specialised equipment and techniques at a liquefaction plant or terminal. The tanks are heavily insulated to keep the LNG at a low temperature, and the ship's engines and other equipment are powered by natural gas boiled off from the cargo. The tanker typically travels at 18 – 20 knots (20 – 23 mph), and the journey can take several days or even weeks depending upon the distance and route. During the voyage, the tanker must navigate shipping lanes while avoiding other vessels and dealing with potential hazards, such as rough weather and piracy. When the tanker arrives at its destination, the LNG is offloaded and stored in insulated tanks until it is needed. It can then be degasified and piped to homes, businesses, and power plants for use as a fuel source.

Figure 2. LNG allows for efficient natural gas storage and transportation, and it is vaporised for customer use.

In February 2016, the US began exporting LNG from the lower 48 states. The US has the highest LNG export capacity, exporting the largest volume than any other country as of July 2022. During the 1H22, US LNG exports averaged 11.1 billion ft3/d. The three export projects under construction in the US (Golden Pass LNG, Plaquemines LNG, and Corpus Christi Stage III) are expected to increase US LNG peak export capacity by 5.7 billion ft3/d by 2025 once completed. Golden Pass LNG is building standard-size liquefaction trains, each with a peak LNG production capacity of up to 0.8 billion ft3/d. In contrast, the other two projects under construction, Plaquemines LNG and Corpus Christi Stage III, use a modular technology with mid scale refrigeration trains which have shorter project construction timelines.

According to the International Group of Liquefied Natural Gas Importers (GII-GNL) and trade press data, LNG import capacity in the EU and the UK is expected to increase by 34%, or 6.8 billion ft3/d by 2024 compared to 2021. Import or regasification capacity is expected to increase by 5.3 billion ft3/d by the end of 2023 and another 1.5 billion ft3/d by the end of 2024. Many of Europe's new regasification projects can be developed quickly by chartering FSRUs and constructing pipelines to transport regasified natural gas to connecting pipelines onshore. Other regasification projects in Europe are expected to increase capacities at existing onshore terminals and implement upgrades to increase throughput at existing terminals. Construction of regasification terminals in seven EU countries including Germany, Poland, France, Finland, Estonia, Italy, and Greece is expected to add a 3.5 billion ft3/d capacity by the end of 2023.

Figure 3. New LNG regasification capacity additions in European countries in 2023.

Since the late 1960s, the structure and trends in the Asian LNG market have changed significantly. While established markets such as Japan or Korea have maintained their dominance as the largest consumers in the region, their domestic markets have changed as a result of liberalisation policies, leading to various stages in the opening of the market. Along with this, the emergence of fast-growing LNG importers such as the People's Republic of China has resulted in significant market growth, which has coincided with greater diversification in supply. Such a shift in the contractual structure has had an impact on the formation of the price, resulting in higher diversity in indexation and cross-influence between regional markets. The Asia Pacific region is expected to be the most reliable and rapidly growing market for LNG. However, this assumption has been called into question by the turbulence caused by COVID-19 in global gas markets. The EU's push to replace Russian piped gas with LNG caused prices to reach all-time highs in 2022. As a result, Asian LNG demand declined by 7%, the first annual drop since 2015. As high prices stifled Asian demand, utility profits fell, proposed import projects were shelved, and countries in the region faced the constant threat of fuel shortages and blackouts.

The market in the Middle East and Africa offers significant opportunities for companies planning to invest in the region. The region has abundant natural gas reserves, with Qatar, Iran, Algeria, Nigeria, and Egypt among the world's largest producers. This lays a strong foundation for the development of LNG projects. The region has a rapidly growing demand for energy, driven by economic development, urbanisation, and population growth. LNG can help meet this demand while also being a more environmentally-friendly alternative to other fossil fuels. Governments in the region are supportive of developing their natural gas resources, and policies to encourage private sector investments in the sector are being implemented. Qatar, for instance, has begun a programme to increase its LNG production capacity by 64% by 2027.

The LNG industry is experiencing price fluctuations and oversupply. Reduced demand for gas as a result of the pandemic has contributed to excess supply, causing market volatility. Furthermore, increased competition among gas supply sources as new supply enters the market has eroded margins, placing pressure on gas and LNG producers. The other major challenges in the LNG market are infrastructure constraints, environmental concerns, political and regulatory risks, and technological challenges. LNG infrastructure development, such as liquefaction plants and regasification terminals, can be costly and time-consuming, especially in remote or offshore locations. LNG production and transportation can have negative environmental con

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sequences, such as methane leaks and greenhouse gas emissions, which can influence public perception and regulatory requirements. Changes in government policies and trade disputes, for example, can have an impact on supply and demand in the LNG market. New LNG technologies such as FSRUs necessitate significant investments and can present technical challenges.

LNG, on the other hand, has a brighter long-term outlook than other fossil fuels due to its lower cost and lower emissions caused during production and combustion. However, in order to gain a true competitive advantage in a volatile market, the LNG industry must move beyond what were previously successful strategies (control of gas resources, reliability of supply). LNG players should prioritise capital efficiency, supply-chain optimisation, downstream market development, decarbonisation, and digital and advanced analytics. The proper implementation of policies and develop-ments related to LNG could weather an uncertain market and offer opportunities for faster growth.

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