Page 10 - GLNG Week 42

GLNG COMMENTARY GLNG

The agency sees potential for new liquefac- mid-October, and if there is no further contract-
tion capacity to meet a need later in the decade ing activity this year, it would mark a decline of
under the STEPS scenario. This has a supply gas over 50% on 2019.
beginning to emerge in the late 2020s. However, The IEA noted that while COVID-19 had
the IEA believes that under either a Delayed contributed significantly to the demand shock
Recovery Scenario (DRS) or a Sustainable experienced this year, the amount of supply
Development Scenario (SDS), which assumes a in the global market since last year was a more
surge in clean energy policies and investments, important driver of the decline in contracting
existing and under-construction capacity would activity. It added, though, that despite the decline
suffice until the end of the decade. in total volumes contracted in 2020, the number
of fixed-destination contracts had grown in the
What next? year to date.
Further challenges lie ahead for the LNG indus- Aside from ongoing short-term impacts of By 2030, over
try, the IEA warned, with one-third of active COVID-19 on gas demand, the next major chal-
contracts due to expire over the next five years. lenge for producers appears to be able to respond 40% of current
Over the same period, global liquefaction capac- to the wave of expiring contracts when the appe- LNG contracts are
ity is projected to increase by 20% from projects tite for striking up new contracts seems to be
that are currently under development, according diminishing among buyers of LNG. Indeed, the set to expire.
to the agency. By 2030, over 40% of current LNG IEA noted that even last year, developers of new
contracts are set to expire. capacity had started moving away from a model
“These two factors will strongly impact the where final investment decisions (FIDs) were
structure of LNG supply, and create new oppor- underpinned by sufficient long-term offtake
tunities for buyers and challenges for marketers agreements. Instead, many of the projects that
in a context of demand uncertainty,” the IEA were sanctioned recently employed an equity
said. financing model that does not rely on such con-
The Global Gas Security Review sees LNG tracts, allowing projects to reach FID sooner.
supply between now and 2025 as being shaped Given how much the LNG market has
by low contracting activity, contract expiry and evolved in recent years, it would not be surpris-
the expansion of liquefaction capacity. Accord- ing if the near and medium term are character-
ing to the report, LNG contracting slowed in ised by further change. Competition between
2019, with contracts worth a combined vol- different countries to dominate the LNG mar-
ume of 74 bcm signed, down from 95 bcm the ket is intensifying, and innovative approaches
previous year. Activity collapsed in 2020, with to the current set of challenges could be what
only 35 bcm worth of contracts signed up to is needed.™

P10 www. NEWSBASE .com Week 42 23•October•2020