Shell sees 18% surge in global LNG trade as coal-to-gas switch accelerates in Asia

Monday, 04 March 2019
Free Read

Natural gas will become the fastest-growing energy source in the coming decades, displacing coal as a fuel for power plants and heavy industries, Royal Dutch Shell said in its 2019 LNG Outlook 2019. Global energy demand will grow 18% by 2035, with gas forecast to meet 40% of that largely through expanding LNG trade. 

The global transition to cleaner-burning natural gas, is largely driven by government policies aimed a curbing air pollution in China and India, or the shift from nuclear to green energy sources in Germany and Japan. 

Asian LNG imports again exceeded expectations, absorbing continued supply growth last year. China, India, South Korea and Pakistan led LNG demand growth in 2018, and will likely continue to do for most of this year. Global gas demand is seen rising by 27 million tonnes to 319 million tonnes this year, and reach about 384 million tonnes in 2020.

Clean air policies push up gas demand

Policymakers in Beijing have pushed through radical changes in the Chinese energy mix in recent years, mandating an end to new-build coal power project in megacities along the eastern coastline. Strict coal-to-gas switching policies led to a 78% improvement of Beijing’s winter air quality in the last 5 years.

Efforts to improve air quality saw China’s LNG imports surge by around 16 million tonnes in 2018, propelling the country in the position of the world’s largest gas buyer with LNG imports doubling over the past two years alone. In addition, the Chinese government targets to increase the share of gas in China’s power generation mix from 4% in 2010 to 10% by 2020.

The rise in global LNG trade, projected to reach 11% this year mainly due to growing demand in China will help reduce energy-related greenhouse gas emissions on a global scale, Shell said in its 2019 LNG report. The worldwide LNG trade has expanded by 27 million tons per annum (mtpa) in 2018, with Chinese demand making up 16 mtpa of that volume.

Fuel-switching in Europe to help absorb supply glut

As flurry of new LNG supply will come to market over the next few years, as 2018 saw financial investment decisions (FID) on 21 mt of new capacity, compared with just 7 mt in the previous two years combined. Some 35 million tons of new supply is expected for 2019, on top of the last year’s 37 mt of LNG capacity addition.

Europe and Asia are expected to absorb that growth – for now. Shell sees demand growth potential in particular in the European power sector where utilitsation of gas-fired power generation capacity is currently below 40%.

Long market expected to turn by mid-2020

From 2025 onwards, however, the currently long market is likely to turn and become undersupplied, as that not enough liquefaction and export capacity is being planned, financed and built to meet future demand growth.

Staying optimistic, Shell pointed out the duration of contracts signed last year had more than doubled to 13 years on average. “A rebound in new long-term LNG contracting in 2018 could revive investment in liquefaction projects,” the Anglo-Dutch company said. “But based on current demand projections, we still expect supplies to tighten in mid-2020s.” 

Related Video

Free Read