Page 8 - DMEA Week 09 2020

DMEA COMMENTARY DMEA
Long-term optimism, short-term worries
In the long term, there is more confidence in LNG demand growth, as illustrated by Royal Dutch Shell’s latest LNG Outlook
GLOBAL
WHAT:
Shell expects LNG demand to double to 700mn tonnes by 2040.
WHY:
The company believes natural gas will play a growing role in shaping a lower-carbon energy system.
WHAT NEXT:
The forecast comes as the short-term outlook for LNG is increasingly gloomy.
THE short-term outlook for the global LNG market is increasingly bleak as the coronavirus (COVID-19) outbreak hits demand. But this has not stopped more confident predictions of LNG’s long-term potential from emerging.
In late February, Royal Dutch Shell released its latest annual LNG Outlook – a report it has been publishing since 2017. Shell’s findings on LNG trends over the course of last year – as well as its expectation for future years – illustrate the growing role the fuel is playing in the global energy mix. And Shell appears to expect that in the long run, demand for cleaner-burning energy will help the LNG market to grow fur- ther still.
Looking back
Shell said in its report that global demand for LNG grew by 12.5% to 359mn tonnes in 2019. This marked a “significant increase”, bolstering the role of LNG in the energy transition, it noted.
On the supply side, 40mn tonnes came online in 2019 – an industry record – and confidence in long-term demand was further illustrated by a wave of final investment decisions (FIDs) on a combined 71mn tonnes of new liquefaction capacity. Indeed, the amount of capacity to be approved was also at a record high last year.
“The global LNG market continued to evolve in 2019, with demand increasing for LNG and natural gas in power and non-power sectors,” Shell’s director of integrated gas and new ener- gies, Maarten Wetselaar, said in a statement.
“Record supply investments will meet people’s growing need for the most flexible and clean- est-burning fossil fuel.”
Shell found that Europe absorbed the major- ity of last year’s supply growth, while imports to Asia only rose modestly compared with 2017 and 2018. This was attributed to a combination of factors. In Europe, the growing availability of cheap LNG accelerated coal-to-gas switching. The trend was boosted by the decline of domes- tic European gas production, as well as pipeline imports, and led to imports of LNG to the region rising by 74%.
In Asia, meanwhile, mild weather and an increase in nuclear generation in Japan and South Korea – two of the leading LNG import- ers globally – served to dampen appetite for the super-chilled fuel. However, demand rose 14% in China in 2019, as the country continued its efforts to improve air quality. In addition, demand increased in South and Southeast Asia, by 21%, as the region sought more overseas gas in an attempt to offset declining domestic production.
However, 2019 also saw LNG become a vic- tim of its own success with the amount of availa- ble supply bringing down spot prices.
The increasing flexibility of LNG trade, whilst being a welcome development for buyers, has become a headache for sellers – especially when they are seeking long-term offtake agreements to underpin new liquefaction projects. Now, devel- opers are having to adapt to this new market
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w w w . N E W S B A S E . c o m Week 09 05•March•2020