Insights

LNG demand forecasts are great news for North American suppliers

Tuesday May 14, 2024 | By Tom Young

Modest economic recovery in China and lower-than-expected demand from Europe have helped re-balance LNG markets.

Gas and LNG prices stabilized during 2023 – averaging $14/mmbtu, a 60% decline from 2022. The market is likely to remain balanced as new buyers take advantage of additional supply from North America (and to a lesser extent Qatar) during the next six years.

Shell’s latest LNG outlook, however, is reasonably bullish on LNG in the medium-term. While high storage levels and a mild winter dampened recent European demand, Europe will import 121 mtpa this year. It will have a supply gap of 70 million tons per annum (mtpa) by 2025 that will need to be met with spot imports.

Source: Shell LNG Outlook 2024 – Available via Evaluate Energy Documents

Chinese demand grew 8% in 2023 – less than widely expected – to reach 70 mtpa of imports. LNG demand is expected to grow by 5-7 mtpa in 2024.

“China is likely to dominate LNG demand growth this decade as its industry seeks to cut carbon emissions by switching from coal to gas,” said Steve Hill, Executive Vice President for Shell Energy, who has since left the company.

Shell expects global LNG demand will rise from 404 mtpa in 2023 to 625-685 mtpa in 2040, as industrial coal-to-gas switching gathers pace in China and South Asia.

Source: Shell LNG Outlook 2024 – Available via Evaluate Energy Documents

Vietnam, the Philippines, Thailand, and Bangladesh could collectively have 65 mtpa of demand by 2040, up from under 10 mtpa currently, according to Shell. Ghana and Bahrain could also represent new sources of demand, while India — which has always been a price-dependent buyer — could start to absorb more volumes if additional capacity causes global LNG prices to trend down.

LNG bunkering is also expected to represent a growing source of demand, from 3.8 mtpa in 2023 to 35 mtpa by 2035.

Market balance and net zero

How demand shapes up beyond 2035 is a major point of debate.

Shell sees demand outstripping supply at that point, based on current supply under construction and its demand forecast.

The IEA’s Net Zero Scenario, however, sees supply outstrip demand by over 230 mtpa by 2035. This scenario is based on the global energy sector achieving net zero CO₂ emissions by 2050, and is consistent with the goal of the Paris Agreement to limit the average global temperature rise to 1.5 °C.

The United Nation Environment Programme (UNEP) puts the likelihood of reaching that goal at 14%.

“It is becoming increasingly clear that LNG will play some role in the transition to net zero. In that context, there will be a growing focus on low carbon LNG as buyers look to comply with emissions reductions targets,” said Nikki Zenonos, Managing Director of Evaluate Energy.

Supply is growing

Just under 80 mtpa of new LNG capacity is expected onstream by 2027, which includes 53 mtpa from U.S. export projects, according to the U.S. Energy Information Administration (EIA). This would bring the U.S. to 137 mtpa of capacity, making it by far the world’s biggest exporter.

This capacity would be unaffected by the Biden administration’s pause on approvals of LNG export projects targeting non-FTA countries. It would impact new projects that have applied for, but do not yet have, non-FTA approval.

The Biden administration could decide the current criteria for approvals is adequate and allow them to resume. The Trump campaign says a Trump administration would lift the pause on exports.

Canadian production is also due to grow, with LNG Canada bringing 14 mtpa of production from 2025. A second phase of the project — to be decided next year — would double the plant’s capacity to 28 mtpa. And Woodfibre LNG plans 2.1 mtpa of liquefaction capacity from 2027, with construction on the project underway.

By 2030, North America expects to have over 190 mtpa of capacity online (around 30% of total global capacity).

This growth is reflected in long term sales and purchases agreements (SPAs) from the region, with North America being responsible for around half (30 mtpa) of the 60 mtpa contracted in deals in 2023, according to Shell.