LNG exports prospects darken

By PLANT Staff   

General Sustainability Energy Oil & Gas energy exports International Energy Agency liquified natural gas lng manufacturing Oil and gas production renewable energy

Affordable renewables weigh on growth.

It's unlikely BC's anticipated LNG exports will be online by 2020. PHOTO: THINKSTOCK

It’s unlikely BC’s anticipated LNG exports will be online by 2020. PHOTO: THINKSTOCK

Lower prices will feed a pick-up in global natural gas demand over the next five years following a marked slowdown in 2013 and 2014, but growth in demand will fall short of previous forecasts, the International Energy Agency has concluded in its annual Medium-Term Gas Market Report.

The report, which analyzes five-year projections of natural gas demand, supply and trade developments, sees global demand rising by 2% per year by the end of the forecast period, compared with 2.3% projected in last year’s outlook.

The downturn will be led by weaker demand in Asia, where persistently high gas prices have caused consumers to switch to other options, such as cheaper coal and more affordable renewable sources.

Asian gas prices are indexed, or linked, to those for oil. As oil prices hovered over USD $100/barrel, Asian consumers were paying a hefty premium for their gas compared with other buyers. The oil price rout that began in mid-2014 has spilled over to natural gas markets in Asia and allowed the Asian premium to narrow substantially. Demand may not recover as quickly as the drop in prices.


Gas demand will benefit from plunging prices in the short term, but the long-term outlook has become more uncertain, especially in Asia, where a few countries will move ahead with plans to expand coal-fired power generation over gas-fired options.

Investment intensive
On the supply side, lower oil prices will have a major impact on gas upstream and infrastructure investment. Companies are cutting capital expenditures and refocusing on core assets with fast returns, which will lead to slower production growth over the medium term.

Due to their capital-intensive nature and long lead times, liquefied natural gas (LNG) projects are soft targets for investment reductions and several of them are likely to be delayed or even cancelled. If current low prices persist, LNG markets could start tightening substantially by 2020, with demand gradually absorbing the large supply upswing expected over the next three years.

In the short term, gas markets will need to cope with a flood of new LNG supplies. The report projects global LNG export capacity to increase by more than 40% by 2020, with 90% of the additions coming from Australia and the US.

Europe, however, will become an important outlet, where LNG imports will double between 2014 and 2020. Despite the increase, there won’t be a meaningful reduction in European imports from Russia, which will remain locked in the 150 to 160 bcm range. In OECD-Europe, domestic gas production is projected to continue to fall and to stand 25% below its 2010 level by 2020. European gas import requirements will increase by almost one-third between 2014 and 2020.

In Canada, it’s unlikely BC will have any of its anticipated LNG export projects online by 2020, the report said, contrary to the province’s goal of having three LNG plants in operation by then – plans based on strong export demand from Asia.

The BC government expects more than $100 billion in tax revenue and a GDP boost of more than $1 trillion over the next 30 years if it can get five projects online.

IEA said projects in BC cost more because of the number of projects that would have to be built from scratch in remote locations, with massive distances between proposed terminals and gas fields.


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