Released November 06, 2024 | SUGAR LAND
en
Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The coming years look to be difficult for companies in the early stages of developing liquefied natural gas (LNG) terminals, as new worldwide export capacity is expected to swamp demand growth, putting downward pressure on prices and profitability, according to a recent report from the International Energy Agency (IEA) (Paris, France).
IEA's "World Energy Outlook 2024" (WEO 2024), released October 16, devoted considerable space to natural gas issues, specifically how the next 25 years of the global LNG trade could play out.
The report noted, "An unprecedented volume of LNG (export capacity) is due to come online in the second-half of the 2020s, led by a near-doubling of export capacity in the United States and Qatar. If all projects that are under construction are completed on time, available liquefaction capacity is expected to rise globally from 580 billion cubic meters (Bcm), or about 20.5 trillion cubic feet (Tcf) per year, today to 850 Bcm, or approximately 30 Tcf, per year in 2030. This increase in export capacity is larger than projected LNG demand growth; the result is an overhang of capacity which is set to depress international gas prices and set the stage for fierce competition between suppliers."
Click on the image at right to see a chart of all LNG export capacity that is scheduled to come online by 2030.
For several years, the IEA has used three scenarios to suggest what future energy demand and carbon dioxide (CO2) emissions could look like to 2050 pursuant to the Paris Agreement to limit global emissions of CO2 to combat global warming. The IEA's three scenarios are:
High LNG prices in the prior decade triggered a rapid buildout of LNG export capacity globally in the 2015-2020 period. The U.S. brought several new export terminals online in recent years, and more are being developed. But Qatar also plans to aggressively grow its LNG business. Australia, the world's third-largest exporter of LNG, also has ambitions to grow its LNG export business, but high gas costs and problems with its export terminals may force a rethinking of those ambitions.
If new LNG export capacity exceeds demand growth, delivered prices should fall, benefitting consumers in importing nations, noted the IEA report, which was nearly 400 pages in length. But falling LNG prices could undermine the economics of some planned LNG capacity additions. Low-cost gas producers, such as the U.S. and Qatar, could gain market share at the expense of higher-cost producers like Australia, Russia and Africa. Even in low-cost countries, early-stage LNG export terminal projects could become economically unviable until the current surplus is worked off, leading to project postponements and cancellations.
Although "WEO 2024" is not concerned with picking winners and losers in the LNG business, it observed that the current average delivered cost of LNG is around $4.50/MMBtu, but that average masks a wide variance. "The most cost-competitive sources of LNG," it said, "are projects that have paid off their initial invested capital and that benefit from low-cost feed gas and low operating costs, such as the Qatari LNG trains that started in the early 2000s."
It continued: "Around 40% of existing projects have yet to recover fully their invested capital, having been online for less than the typical ten-year period over which debt is recovered in project finance for large-scale LNG terminals. For projects under construction, average delivered costs are estimated to be around $8/MMBtu, but there is a risk that this may increase due to mounting cost inflation amid a queue of projects. Indeed, delays or significant budget overruns have already affected around 20% of the projects that have made a final investment decision since 2019."
In the IEA's STEPS scenario, existing LNG export capacity and new capacity under construction are together sufficient to meet projected demand to 2040. After that, additional export capacity will be needed due to increasing demand for LNG. By 2050, the amount of additional export capacity needed rises to around 180 Bcm, or about 6.4 Tcf, most of which is expected to come from the Middle East and North America, the report said.
Normally, the boom-and-bust cycles of LNG demand and supply would work themselves out over time. Economists are fond of saying, "the cure for high prices is high prices, and the cure for low prices is low prices." But LNG has multiple uses, including as a fuel to generate electricity and as a feedstock for petrochemical manufacturing. And in the electricity market, LNG is competing with renewable electric generation such as wind and solar.
The "WEO 2024" report noted that, "The problem for LNG suppliers is that, once all the costs of liquefaction, shipping and regasification are taken into account, it becomes a relatively expensive fuel, and a supplier could struggle to compete in emerging and developing markets while providing sufficient returns. For example, in countries such as India, imported gas prices would need to be around $3-5/MMBtu to compete with coal (for electric generation), and prices in that range are likely to be below the delivered cost of LNG for many export projects around the world."
In the agency's STEPS case, "the degree of demand response to the LNG surplus is constrained by the projected scale of renewables deployment, a gradual reduction in the potential for increased coal-to-gas switching as coal plants retire and faster efficiency gains and electrification rates than in the past. Moreover, the markets with ample infrastructure in place to receive additional LNG, notably Europe and China, are also those that are making the most rapid progress with energy transitions, reducing the likelihood that they will absorb major additional volumes of LNG."
In the agency's STEPS case, global demand for natural gas is seen as plateauing to 2050, at about 150 exajoules (EJ), while clean energy triples to about 300 EJ from current levels of about 100 EJ. "Led by surging solar photovoltaic (PV) and wind power, clean energy becomes the largest source of energy in the mid-2030s" in all three IEA cases.
Click on the image at right to see the global energy mix to 2050 in the STEPS case, and a snapshot of the global energy mix in 2050 in all three cases.
The outlook for natural gas in general, and LNG in particular, is even bleaker in the agency's most-aggressive APS and NZE cases, where renewables displace fossil fuels at even-faster rates.
The IEA has long cheered the global buildout in renewables, and it emphasized that the "WEO 2024" is not a prediction. Still, if the broad outline of its STEPS case comes to pass, first movers in the LNG buildout of the prior decade should be well-rewarded over the next decade. Latecomers, by contrast, would be penalized. That would validate the adage, "The early bird gets the worm."
For more coverage of the recently released "WEO 2024," see November 1, 2024, article - IEA: To Defeat Global Warming, Boost Funding of Energy Transition in Global South and November 4, 2024, article - IEA Report Assesses How Global Oil Demand Will Fare if EV Ownership Surges as Projected.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).
IEA's "World Energy Outlook 2024" (WEO 2024), released October 16, devoted considerable space to natural gas issues, specifically how the next 25 years of the global LNG trade could play out.
The report noted, "An unprecedented volume of LNG (export capacity) is due to come online in the second-half of the 2020s, led by a near-doubling of export capacity in the United States and Qatar. If all projects that are under construction are completed on time, available liquefaction capacity is expected to rise globally from 580 billion cubic meters (Bcm), or about 20.5 trillion cubic feet (Tcf) per year, today to 850 Bcm, or approximately 30 Tcf, per year in 2030. This increase in export capacity is larger than projected LNG demand growth; the result is an overhang of capacity which is set to depress international gas prices and set the stage for fierce competition between suppliers."
Click on the image at right to see a chart of all LNG export capacity that is scheduled to come online by 2030. For several years, the IEA has used three scenarios to suggest what future energy demand and carbon dioxide (CO2) emissions could look like to 2050 pursuant to the Paris Agreement to limit global emissions of CO2 to combat global warming. The IEA's three scenarios are:
- Stated Policies Scenario (STEPS) is effectively the continuation of current actions, or business as usual
- Announced Pledges Scenario (APS) shows what would happen if all national energy and climate targets made by governments, including net zero goals, were met in full and on time
- Net-Zero Emissions by 2050 Scenario (NZE) maps out "an increasingly narrow path" to reach net zero emissions by mid-century in a way that limits long-term average temperature gain to 1.5 °Celsius over preindustrial times.
High LNG prices in the prior decade triggered a rapid buildout of LNG export capacity globally in the 2015-2020 period. The U.S. brought several new export terminals online in recent years, and more are being developed. But Qatar also plans to aggressively grow its LNG business. Australia, the world's third-largest exporter of LNG, also has ambitions to grow its LNG export business, but high gas costs and problems with its export terminals may force a rethinking of those ambitions.
If new LNG export capacity exceeds demand growth, delivered prices should fall, benefitting consumers in importing nations, noted the IEA report, which was nearly 400 pages in length. But falling LNG prices could undermine the economics of some planned LNG capacity additions. Low-cost gas producers, such as the U.S. and Qatar, could gain market share at the expense of higher-cost producers like Australia, Russia and Africa. Even in low-cost countries, early-stage LNG export terminal projects could become economically unviable until the current surplus is worked off, leading to project postponements and cancellations.
Although "WEO 2024" is not concerned with picking winners and losers in the LNG business, it observed that the current average delivered cost of LNG is around $4.50/MMBtu, but that average masks a wide variance. "The most cost-competitive sources of LNG," it said, "are projects that have paid off their initial invested capital and that benefit from low-cost feed gas and low operating costs, such as the Qatari LNG trains that started in the early 2000s."
It continued: "Around 40% of existing projects have yet to recover fully their invested capital, having been online for less than the typical ten-year period over which debt is recovered in project finance for large-scale LNG terminals. For projects under construction, average delivered costs are estimated to be around $8/MMBtu, but there is a risk that this may increase due to mounting cost inflation amid a queue of projects. Indeed, delays or significant budget overruns have already affected around 20% of the projects that have made a final investment decision since 2019."
In the IEA's STEPS scenario, existing LNG export capacity and new capacity under construction are together sufficient to meet projected demand to 2040. After that, additional export capacity will be needed due to increasing demand for LNG. By 2050, the amount of additional export capacity needed rises to around 180 Bcm, or about 6.4 Tcf, most of which is expected to come from the Middle East and North America, the report said.
Normally, the boom-and-bust cycles of LNG demand and supply would work themselves out over time. Economists are fond of saying, "the cure for high prices is high prices, and the cure for low prices is low prices." But LNG has multiple uses, including as a fuel to generate electricity and as a feedstock for petrochemical manufacturing. And in the electricity market, LNG is competing with renewable electric generation such as wind and solar.
The "WEO 2024" report noted that, "The problem for LNG suppliers is that, once all the costs of liquefaction, shipping and regasification are taken into account, it becomes a relatively expensive fuel, and a supplier could struggle to compete in emerging and developing markets while providing sufficient returns. For example, in countries such as India, imported gas prices would need to be around $3-5/MMBtu to compete with coal (for electric generation), and prices in that range are likely to be below the delivered cost of LNG for many export projects around the world."
In the agency's STEPS case, "the degree of demand response to the LNG surplus is constrained by the projected scale of renewables deployment, a gradual reduction in the potential for increased coal-to-gas switching as coal plants retire and faster efficiency gains and electrification rates than in the past. Moreover, the markets with ample infrastructure in place to receive additional LNG, notably Europe and China, are also those that are making the most rapid progress with energy transitions, reducing the likelihood that they will absorb major additional volumes of LNG."
In the agency's STEPS case, global demand for natural gas is seen as plateauing to 2050, at about 150 exajoules (EJ), while clean energy triples to about 300 EJ from current levels of about 100 EJ. "Led by surging solar photovoltaic (PV) and wind power, clean energy becomes the largest source of energy in the mid-2030s" in all three IEA cases.
Click on the image at right to see the global energy mix to 2050 in the STEPS case, and a snapshot of the global energy mix in 2050 in all three cases. The outlook for natural gas in general, and LNG in particular, is even bleaker in the agency's most-aggressive APS and NZE cases, where renewables displace fossil fuels at even-faster rates.
The IEA has long cheered the global buildout in renewables, and it emphasized that the "WEO 2024" is not a prediction. Still, if the broad outline of its STEPS case comes to pass, first movers in the LNG buildout of the prior decade should be well-rewarded over the next decade. Latecomers, by contrast, would be penalized. That would validate the adage, "The early bird gets the worm."
For more coverage of the recently released "WEO 2024," see November 1, 2024, article - IEA: To Defeat Global Warming, Boost Funding of Energy Transition in Global South and November 4, 2024, article - IEA Report Assesses How Global Oil Demand Will Fare if EV Ownership Surges as Projected.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) platform helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).
