LNG

Santos has agreed to divert 200 petajoules to the South Australian government, delivered ex-Moomba from Santos’ Cooper Basin operations, formalising supply to the domestic market – rather than LNG exports.

Asian countries are stepping up investment in domestic energy to curb reliance on imported LNG, as energy security overtakes cost following the three-month disruption of the Strait of Hormuz. China, India and Pakistan are accelerating spending on coal, renewables and nuclear power to reduce exposure to LNG imports.

Australian LNG exporters be required to reserve 20% of their gas production for the east coast domestic market under a new policy, effective July 1, 2027. The measure targets three LNG projects – Shell/Arrow Energy's Queensland Curtis LNG, Santos’ Gladstone LNG, and Origin/ConocoPhillips' Australia Pacific LNG.

Freeport LNG Development, majority-owned by founder and CEO Michael Smith, has ramped down operations in the wake of Winter Storm Uri and is considering rescheduling cargoes to long-term buyers to accommodate a spike in US gas demand since the onset of this week’s massive winter storm.

Saudi Aramco is preparing to tap the giant Jafurah shale gas basin in a bid to reduce oil dependence, positioning the Kingdom as a potential LNG exporter. Aramco CEO Amin Nasser singled out the field’s “huge” growth potential, though analysts doubt the Saudi gas market can absorb all the extra supply.

US energy imports have fallen off a cliff and currently make up just 17% of domestic energy supply, half the share in 2006. Analysts attribute this plunge to the unfolding shale gas revolution and fast renewable energy build-out.

LNG use for transport is driving infrastructure investment in China, where the fleet of LNG-fuelled trucks nearly tripled over the past five years. Government data indicates, however, utilities liquefy enough domestic gas to meet trucking demand – while battery electric trucks are about to outcompete LNG-fuelled ones.

“China’s surge in LNG trucks will not last” and is likely to ease by 2030, Wood Mackenzie reckons. As battery technologies advance, electric vehicles are expected to displace LNG as the main threat to diesel – and demand for the dirty fuel is hence forecast fall from 2.3 million b/d in 2023 to 0.7 million b/d by 2050.

“LNG-powered trucks are gaining in popularity, but should only be seen as a bridging solution,” said Shiqing Xia, WoodMac consultant for Oils and Chemicals. “Investment in electric or hydrogen fuel cell trucks to respond to future market demands will not only help to meet environmental requirements, but could also give companies a long-term competitive advantage.”

Affordability issues

In India, the affordability of LNG is a main stumbling block – both for burning imported gas to generate electricity and also for combusting LNG as a transport fuel. The fertilizer, for once, consumes substantial LNG volumes in India though this demand largely hinges on government subsidies, handed out to keep low consumer prices.

Imported gas still costs too dear for the world’s emerging economies, Bloomberg finds, but analysts are optimistic that a supply surge starting from 2027 will bring down fuel costs in Asia.

Analysts question Shell’s bullish case for LNG market growth over the next 15 years. This year, the company increased its demand expectations to between 630 and 718 mtpa by 2040, some 1-5% higher than last year’s projection.

Dwindling demand for imported fuels

Yet, LNG demand has remained limited in sectors that do not receive fiscal support. According to IEEA analysis, global LNG prices would have to fall by half to compete in power generation, where gas provides less than 2% of the electricity mix.

“With the exception of China, natural gas consumption has grown mainly in countries that produce enough gas to either be self-sufficient or net exporters, like the U.S. By contrast, gas demand has tended to fall in markets that require large import volumes, like Europe and Japan,” IEEFA’s Sam Reynolds and Christopher Doleman commented.

Looking at Vietnam, downside risks get more pronounced: The country’s latest Power Development Plan initially targeted 22 gigawatts of LNG-fired power capacity by 2030, but a recent draft revision lowered the target to 18 GW due to slow progress.

Only one LNG plant with 1.6 GW of capacity has secured a power purchase agreement to date, and analysts fear that very few other projects may be operational before 2030. Factoring in fuel costs, it’s worth noting that Vietnam’s wind and solar generation now exceeds gas-fired power, which dwindled 45% over the past ten years.

Kpler data shows that the volume of LNG traded in 2024 grew by its lowest level since 2012 which makes analysts questions oil majors’ bullish stance on global gas demand. In fact, Shell’s latest LNG Outlook departs from previous arguments: It downplays LNG’s role in the power sector and no longer emphasizes claims that LNG can displace coal in Asia. Instead, Shell argues that data centres and AI will drive long-term LNG demand, though this remains uncertain.

Argentina’s Vaca Muerta basin has seen shale oil production rise 35% yoy in the third quarter to 400,000 barrels per day (bpd) due to productivity gains. To sustain growth, the $2.5 billion Vaca Muerta Sur pipeline is being developed to expand takeaway capacity from the field to global markets.

India is poised to snap up big parts of the substantial volume of uncontracted LNG from the Middle East. Buying interest is on the rise as the Indian government allows utilities to blend LNG with domestically produced gas in a bid to make it more affordable for power generation, compared with coal.

Watch out for uncontracted LNG cargoes, seems to be the motto of Indian commodity traders and large utilities. Looking ahead, Rystad’s Kaushal Ramesh, Vice President Gas & LNG Research, expects savvy buyers to secure large parts of the uncontracted LNG production from Qatar, Oman and potentially Iran – at favourable terms.

“The nation is well-positioned to attract aggressive targeting from Middle Eastern producers and offtakers,” he said, noting nearly 100 million tons per annum (mtpa) of Middle East LNG will remain uncontracted by 2035.”

Flexible, low-cost supply preferred

Some potential pitfalls should, however, be taken into consideration: A key issue is Indian buyers’ history of renegotiating or even abandoning near-complete deals, which creates uncertainty for suppliers.

In Ramesh’s view, “this preference for flexibility and cost-effectiveness over long-term commitments highlights India's focus on securing the best prices for its consumers in a volatile global market – but it could limit LNG growth prospects.”

Delays at infrastructure build-out hampers the development of India’s overall gas and power gen sector. Regasification terminals remain concentrated in the western part of the country, and efforts to expand the gas pipeline network to other regions have been inconsistent.

“Slow progress is due to regulatory hurdles, challenges in securing investments, difficult terrain, and competing priorities,” he criticised, “as India channels significant resources into renewable energy development alongside its gas infrastructure.”

Domestic production can’t meet demand

Come 2040, India’s total gas consumption is forecast to double to almost 114 billion cubic metres (bcm) and despite a 51 percent jump in domestic production to 36.7 bcm by 2025, this will not suffice to meet India’s growing energy hunger. The Asian powerhouse and most populous nation will hence heavily rely on imports to meet its future energy needs.

Long-term contracts, extending way into the 2030s and beyond, help shield India from global price fluctuations and ensure a steady stream of cargoes shipped to Indian shores. Through these LNG offtake accords, India does not only strengthen its energy security but also facilitates a swift exit from more emission-intensive fuels like crude oil, mazut and thermal coal.

Coal still king in India, at least for now

India’s heavy reliance on coal has become apparent during the summer 2024 heatwaves, which temporarily propelled up coal-burn to meet peak power demand. Natural gas, on the other hand, currently accounts for just 2 percent of the country’s power mix – and in fact, coal-generated power is not projected to start falling this side of 2040.

Though gas-burn is unlikely to drive LNG imports, analysts at Oslo-based Rystad Energy believe “the sector could still see growth, however, depending on future policies to promote coal-to-gas switching or introduce carbon pricing.”

PetroBangla signed its first LNG import deal (2.5 mtpa, 15 years) with Qatar's RasGas in July, but this deal “is a far cry from its LNG ambitions,” according to Wood Mackenzie.