Global LNG market faces 120 mtpa supply gap by 2040: conference

Demand is expected to reach 600 million tonnes per annum (mtpa) by that date, exceeding global LNG supply under construction or operational, Massimo Di Odoardo, vice president of gas and LNG research at Wood Mackenzie told the Gas, LNG and the Future of Energy Conference in London on Tuesday.

There has been a marked change in outlook in the market in the past year, as export projects in the U.S. face potential delays amid the Rio Grande court decision overturning previously awarded permitting, as well as Russian LNG being targeted by sanctions and delays in other projects globally mean a significant share of new supply is being affected, he noted.

Increased geopolitical tensions and risk of escalation in areas such as the Middle East, as well as regulatory and policy headwinds are “starting to weigh substantially” on the projected supply-demand balance, he said.

While Europe lost 100 billion cubic metres (bcm) of gas demand in recent years, and overall demand is still expected to decline overtime, uncertainties over the pace of the energy transition, including the development of a hydrogen economy and the expansion of wind capacity mean gas will continue to play a key role in the energy mix of European countries in the foreseeable future, he said.

Meanwhile, the outlook for Asian LNG demand remains bullish amid a growing trend of data centres for AI and cloud computing driving electricity demand, although gas prices remain a key variable driving uptake in the region, he said.

Demand in China is set to expand by 70% in the next 10 years amid coal-to-gas switching and the introduction of a national carbon emission trading scheme, Miaoru Huang, research director of Asia Pacific gas and LNG at Wood Mackenzie said.

The country will increasingly rely on LNG imports post-2030, amid a decline in domestic production and despite pipeline imports from Russia and Central Asia providing diversification of supply, she said.

Overall, gas demand is set to remain “resilient” in the wider Asian region, despite new nuclear power generation being built, with gas set to play “a key role as transition fuel” particularly in the power generation and industrial sectors and to accelerate the shift away from coal.

Already, gas demand since the beginning of the year has exceeded previous forecasts amid lower gas prices. A wave of new gas-fired power generation being commissioned, particularly in Southern China is further supporting gas demand, she added.

But the biggest question mark driving potential market shortness is related to U.S. LNG exports, hit by court decisions and the pause to new export permits, Di Odoardo said.

The U.S. presidential elections are set to reverse the halt in permitting of new LNG capacity, regardless of the outcome, although a Trump victory is expected to bring a more marked support to new projects.

At the same time, the court decision to reverse the FERC permitting presents a more “insidious” threat to U.S. LNG supply than the FID pause, threatening the bounce back in market activity, Frank Harris, head of global LNG consulting at Wood Mackenzie said.

“Interventions through the courts even post FID…Raise new non-technical risk factors,” agreed De la Rey Venter, CEO of MidOcean Energy.

“U.S. LNG will be essential to balance the market” however even post-elections, a permitting backlog will continue to affect supply development in the U.S.

Meanwhile, Woodside Energy is optimistic regarding the future prospects of LNG, amid previous predictions of a glut in the market failing to materialise, Mark Abbotsford, Woodside’s executive vice president of marketing and trading said.

The company just completed the acquisition of U.S. LNG developer Tellurian, including its Gulf Coast LNG export project, for $1.2 billion.

He said a shift in priorities among tech companies, now more open to gas and LNG alongside renewable energy, to meet growing energy needs from this sector, is one of the trends seen recently in the market.

This is set to affect Henry Hub price dynamics moving froward amid U.S. LNG accounting for some 30% of global supplies, he added.

Data centres’ energy demand is set to increase dramatically in the coming years and “keeping up with that demand isn’t achievable” by relying on “just renewable development,” Cormac Nevin, head of energy systems at Echelon Data Centres, said.

With other sources of energy such as nuclear power facing a lengthy process before new capacity can become available and with power grids requiring a massive expansion in order to bring renewable power to where it is most needed, the sector has no other option but to rely on natural gas to meet the additional demand, he said.

“We have a view that gas is (going to be) part of the energy mix well into the next two decades,” he said.

Meanwhile, a panel on lowering global LNG and gas emissions agreed that cost was the main factor, with end-users reluctant to pay a higher price for decarbonised, low-emission cargoes.

At the same time, the focus has shifted towards understating methane and carbon intensity across the value chain, with end-users demanding more transparency over the data.