LNG to become worlds dominant energy source

NZ the loser when LNG fuels global gas boom

Mark Blood - Fri, 22 Nov 2019

It is hard to believe that it was only 2008 when the first Q-Max class gas super-tanker emerged from a South Korean ship yard on Geoje Island to transport a shipment of liquefied natural gas (LNG) from Qatar to Spain.

Today these huge tankers criss-cross the world’s oceans supplying the fastest growing energy market. The US has already invested in multiple LNG export terminals and Australia is set to overtake Qatar to become the world’s leading LNG producer.

But Qatar intends to retake the lead. The tiny gas-rich Arabian Gulf state is now the world’s largest LNG exporter with nearly 28 per cent of the global market, and it is determined that Australia’s dominance will be short-lived.

Qatar is planning a four-train expansion of its super-giant North Field and has placed the largest-ever order for new LNG vessels – for possibly as many as 100 new carriers. Its 5 year goal is to increase exports by 40 per cent to an astonishing 110 million tonnes per annum (mtpa) by 2024.     

The market for LNG imports has grown considerably in recent years, but there has been a rush of new projects. These include Russia’s Arctic LNG 2, at least one project in Mozambique, three in the US, one in Canada and Qatar’s expansion of North Field – as well as further potential in Papua New Guinea, Australia and Nigeria. This threatens to deflate prices.

Analysts predict this surge in development spending will conservatively add another 124 billion cubic metres (BCM) or 90mtpa of production.

Put simply, these projects are calculated bets that growing demand will keep pace. They also assume that natural gas remains the necessary bridging fuel to eradicate coal and transition to renewable energy sources in a material way.

Source: Nexant

But will it? Or will the explosion in new projects flood the LNG market? Apparently not, according to Shell’s Integrated Gas & New Energies Director, Maarten Wetselaar.

The company’s 2019 outlook report on LNG concludes that the market is not over-supplied and Shell’s big bet on paying ￡36.5bn to buy LNG market leader BG Group was a sound investment.

The report says booming demand from countries such as China and India will outpace the pipeline of new project start-ups. It forecasts global LNG demand will grow at twice the rate of gas demand at 4 to 5 per cent a year to 2030 because of LNG’s inherent flexibility. It can be shipped anywhere to supply consumers beyond the reach of pipelines. 

China steps on the gas

China’s major cities are bedevilled by suffocating smog; its water supply is impacted by global warming; and there is a growing middle-class revolt over pollution.

The country’s leaders are acutely aware that they must deliver cleaner energy to prevent green-political mass protests getting out of control.  

The country is rushing to switch to cleaner natural gas with the aim of increasing the gas share of the total energy market from below 5 percent a few years ago to 10 per cent in 2020 and 20 percent by 2030. Most of this extra gas will come from LNG imports as difficult geology and lack of water has compromised the development of domestic shale gas.

Source: Shell LNG Outlook 2019

The International Energy Agency (IEA) predicts China’s annual gas demand will more than double by 2030 to over 600 BCM – roughly equivalent to 20 Pohokura gas fields.

The US is likely to be the biggest beneficiary of this huge demand following the Trump-Jinping ‘Alaska’ agreement earlier this year. A USD$43bn joint venture between Sinopec and the state of Alaska will build a 1300km pipeline from the North Slope to the Gulf to enable shipment of LNG across the Pacific. Also drawing on shale gas production from other parts of the US, LNG exports will cement the US as a gas superpower.

Source: BP Energy Outlook 2019

NZ’s loss

Fossil fuels have become taboo for New Zealand’s coalition Government following its rush to ban all new offshore exploration in 2018.

That decision likely condemns New Zealand to miss out economically on what the IEA and others are forecasting as a ‘golden age’ for the global gas industry once the current gas glut gives way to a structural shortage from 2023. 

In contrast, Norway – long held as a model for its green credentials, especially when it comes to leading the way for a transition to zero emissions in transport – continues to value its oil and gas industry.

In October, it sanctioned first production from the giant Johan Sverdrup oil field – the country’s third-largest North Sea oil field discovery. The Norwegian Government demonstrates a more mature and less politicised approach in balancing climate change measures with global energy requirements.

Norway’s DNV GL is one of the world’s leading providers of risk management in the global energy industry. It predicts that LNG’s transportation flexibility will make gas the world’s single most important energy source by the mid-2030s, taking 27 per cent of demand by 2050. And gas will remain well ahead of individual renewable energy sources for decades, although renewables in aggregate will make up almost 50 per cent of global energy use.   

Source: DNGV GL 2019 Global Energy Transition Outlook

NZ might have participated in this gas bonanza through LNG exports if it had preserved its former oil and gas policy.

Energy giants like Chevron, Woodside, Statoil (now Equinor) and other new entrants might still be here if the frontier basins had remained open to exploration.

Remaining operators Beach and OMV are showing remarkable perseverance in continuing to work their existing frontier licenses in the Canterbury and Great South Basins in an environment of heightened political risk and inimical opposition.

The DNV GL report make it clear there will be oil and gas use in the future – and the world will need further exploration of these resources, especially gas, because depletion of existing reserves will outpace the decline in demand. 

Mark Blood is a senior oil and gas executive