In the latest “Resources and Energy Quarterly” (December 2020), the Chief Economist notes that volumes of seaborne LNG have increased despite COVID because of a massive gas glut.
While LNG appears to have a near-term future as a transition fuel, its longer term future appears to be uncertain owing to the desire for cleaner energy, competition from nuclear energy and domestic reforms in key markets, the REQ indicates.
Australia
Australia has taken its foot off the gas in the year of COVID. Export volumes are forecast to fall from about 79 million tonnes in 2019-20 to 75 million tonnes in 2020-21. Cargoes have been delayed or deferred and declines have been driven by the impact of COVID on demand for energy, along with technical issues at some LNG plants. In 2021-2022 exports are forecast to rebound to about 80 million tonnes, reflecting a return to growth. The resolution of technical issues at major facilities, such as Prelude, will likely result in increased exports.
The outlook for the near term future is uncertain as some fields, such as the Bayu-Undan field, are exhausted. However, the life of the field could be extended by various technical works being carried out by major operators. Production at the North West Shelf may also open up, the REQ says.
Export earnings are forecast to fall, driven by lower prices and that is making future investment in Australian LNG uncertain as final investment decisions are delayed. “Most of the LNG projects in the investment pipeline are the backfill projects required to support the ongoing operation of existing LNG facilities”, the REQ says.
Global gas glut
On the world stage, the global LNG trade has grown by about 1.1 per cent to an estimated 349 million tonnes in 2020. The COVID pandemic has taken place during an LNG supply glut. At the end of 20-19, global LNG capacity was estimated at 400 million tonnes per annum with another 125 million tonnes per annum under construction or with the green light. Future projects are unlikely to receive a go-ahead. The global LNG trade is expected to grow in the next few years as the LNG market is forecast to tighten with demand absorb some of the excess supply.
Japan
Japanese demand, 74 million tonnes in 2020, has declined owing to COVID but has been partially offset by other factors. Looking forward, LNG imports will only increase marginally as there a slow return of nuclear power which was greatly reduced after the Fukushima disaster some years ago. There is uncertainty over Japan’s future appetite for LNG given its declared intent to be carbon net-zero by 2050.
China
Chinese LNG imports are expected to grow by just under nine per cent this year to 65 million tonnes, making it the world’s second largest LNG importer. Australia is the largest supplier of LNG to China with a market share of about 45 per cent. Chinese LNG demand is likely to grow by 11 per cent for the next couple of years. In future, however, demand for seaborne imports may decline as imports from the United States resume, domestic production increases and pipeline imports grow.
“Despite China’s recent net-zero by 2060 pledge, gas is expected to play an important role in the country’s energy transition,” the REQ says.
South Korea
South Korean LNG imports were down by 3.4 percent in 2020 to an estimated 38 million tonnes. Imports were down owing to COVID and the restart of nuclear power plants. Future growth will be modest at around two per cent per year because of supply from nuclear power. LNG will also likely benefit from a shift from coal. However, a net-zero carbon emissions policy in South Korea makes the future uncertain for LNG to South Korea.
Taiwan
Taiwan’s LNG demand has been “resilient” to COVID owing to a reliance on gas-fired power generation. Taiwan is also aiming to increase the share of LNG power generation from 35 per cent now to 50 per cent by 2025. LNG imports to Taiwan will likely reach 18 million tonnes by 2022.
India
India is forecast to have a demand for 23 million tonnes this year and demand is likely to grow strongly over the next two years. However, this is uncertain and much will depend on future Indian domestic policies, such as local gas market reforms.
