Liquid gas angst seeps from consumers to producers

Afew years ago, it was much better to sell liquefied natural gas than to buy it. Vladimir Putin’s invasion of Ukraine in early 2022 caused the price of European gas to spike to over 300 euros per megawatt hour (MWH), 15 times its longterm level before 2021.

As gas producers crank up supply, the second half of the decade is likely to see a better time for consumers — and an edgier period for companies extracting the fossil fuel.

The world currently consumes 2.9 billion metric tonnes of natural gas a year. Of that about 400 million metric tonnes, or 14%, gets turned into liquefied natural gas (LNG).

The process involves cooling natural gas in special liquefaction facilities to minus 162 degrees Celsius, thereby condensing its volume by 600 times.

The resulting liquid is portable enough to ship around the world to an importing country, where it is returned to its gaseous state and used to fuel factories and heat homes.

In the gas industry, LNG is where the growth is Shell, the world’s largest trader of the stuff, expects, opens new tab global supply to grow at a 3.6% compound annual rate until 2040, while gas delivered by pipeline will shrink by 0.2% a year.

After the attack of Ukraine in 2022, LNG’S share of European gas supply jumped from 19% to 33% as countries shifted away from Russian pipelines.

Producers are responding to rising demand and higher prices. Qatar and the United States, which along with Australia produced nearly two-thirds of the world’s LNG last year, are leading the charge.

Shell thinks that overall supply could spike from 400 million metric tonnes to 600 million metric tonnes by 2030.

Goldman Sachs analysts reckon capacity could increase by 45 million metric tonnes a year between 2025 and 2028, more than three times the average annual increase over the last four years.

The United States and Qatar will account for nearly 70% of this, Jefferies estimates, with the emirate’s output likely to jump by 85% to over 140 million metric tonnes by the end of decade.

That’s even after factoring in US President Joe Biden’s January decision to pause pending and future export applications to study the fuel’s environmental impact, which could delay new US projects.

To be sustainable, a massive surge in supply requires a similar increase in demand.

Conveniently, Shell’s outlook sees global consumption of LNG rising to around 600 million metric tonnes a year by 2030, in line with its expectations for increased supply.

US oil giant Exxon Mobil sees natural gas demand rising 25% by 2050.

Much of that could come from Asia: Jefferies analysts reckon growing Asian economies will account for 70% of the increase in demand for LNG between 2022 and 2030. Yet this lust for LNG is far from assured.

According to Goldman, Asian consumption of the fossil fuel has grown by an annual average of just 18 million metric tonnes in recent years, even after excluding unusually low demand during the pandemic years of 2020 and 2022.

That’s less than half the expected annual growth in supply after 2025. Jefferies analysts think global LNG demand by 2030 may be nearer 550 million metric tons — implying scope for a significant oversupply.