Environment-friendly natural gas well-placed to stay on growth trajectory
March 02 2021 06:19 PM
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Saad al-Kuwari
Saad al-Kuwari

By Saad al-Kuwari

• Future gas projects in Qatar will lead to increased competition in the gas market, and demand will double in 2040
• The market for liquefied natural gas is highly volatile in prices, demand growth; and price may not reach double digits in 2021
• A dedicated gas organisation will help maintain a better balance between supply and demand, and a unified global price that maintains price stability

 

Qatar Petroleum recently set a new record for the largest-ever LNG export project. By 2026, Qatar will once again become the world's largest supplier of LNG, thereby overtaking Australia.

As it is known, the signing of the contract was rescheduled due to global economic stagnation and for better understanding regarding the economic indicators of the project, as well as the market's ability to absorb the surplus production by 2026 from the Qatari project.

And this economic slowdown and declining consumption rates came as a direct result of the Covid-19 pandemic.

With the huge expansion of gas production from Qatar and some other global projects, there may be a surplus in supply in the global market for years to come, and the economic viability of other projects awaiting investment decisions needs to be seen and the price of gas may not rise as it used to be in the past.

For many years, Qatar Petroleum was the leader of the global LNG industry, and the aim of the self-moratorium was to ensure long-term competitiveness by preventing oversupply so as to stabilise the LNG price.

Currently, Qatar produces 77mn tonnes annually. With the expansion of the first phase, the country will increase its capacity to 110mn tonnes per year by 2026; and by early 2027, according to the expansion plan, this production will increase to 126mn tonnes per year after the completion of the first phase.

Finally, with the momentum of rapid industrialisation, developing countries are facing an environmental crisis similar to China, not long ago. Therefore, it is reasonable to expect that the demand for clean gas can offset more polluting fuels such as crude oil or coal that pervade the energy mix in many countries.

The global demand for liquefied natural gas (LNG) is set to nearly double (from 360mn tonnes last year) to 700mn tonnes by 2040, thanks to continued strong demand from Asia and increased use of gas to power sectors where it is difficult to provide electricity.

According to reports, global demand for LNG grew last year despite the coronavirus pandemic, slightly to 360mn tonnes from 358mn tonnes in 2019.

LNG has provided the resilient energy the world needed during the Covid-19 pandemic, demonstrating its resilience and ability to enhance people's lives and reach low carbon emissions.

Asia accounts for nearly 75% of the projected growth in LNG demand through 2040.

China, South Korea and Japan — three of the world's top ten countries in terms of carbon dioxide emissions — have already announced carbon neutrality targets; China by 2060 and Japan and South Korea by 2050.

South Korea, for example, plans to convert 24 coal-fired power plants to LNG by 2030 and boost renewable energy generation capacity by 300%.

China's demand for LNG has already recovered from the start of the pandemic and its imports were higher last year than in 2019. India increased its imports of LNG by 11% year on year in 2020, as it benefited from low-priced LNG during most of the year.

As demand grows, a gap is expected to open between supply and demand in the middle of the decade.

The lack of a dedicated natural gas organisation that can be compared to Opec and a swing product that can be compared to Saudi Arabia from within Opec and Russia from outside may make the LNG market highly volatile in prices and demand growth. The high initial costs and long development time make investments somewhat risky, and the fractional price of gas to reach the break-even point must be at least $7 per British thermal unit.

In this regard, the liquefied natural gas industry in Qatar has a strong advantage due to the low production costs and the strategic location of loading cargoes, especially for Asian markets that have the lion's share in Qatari gas exports compared to competition with producers.

North Field gas with cheap production costs is one of the largest natural gas fields in the world. The Northern Dome significantly improves Qatar Petroleum's competitiveness despite the intense heat in the Middle East. However, Russia's Arctic climate makes it possible to keep liquefaction costs low along with cheap northern gas.

There are reasons to believe that the demand may increase more than is currently expected and thus these future projects will thrive again. There are strengths for the recovery of demand for liquefied gas, especially in China and other developing Asian countries, for the following reasons:

First, the growth of renewables in all regions of the world increases the need for flexibility to balance the grid. Currently, natural gas is a good competitor due to its wide availability and relatively low carbon dioxide emissions.

Second, carbon ceilings reduce the long-term competitiveness of coal in favour of the gas that emits nearly 50% of the carbon dioxide.

China, the world's largest emitter of greenhouse gases, saw the launch of the carbon trading market just a few weeks ago. This could boost the demand for LNG in favour of coal in the Asian country.

 

* Saad Abdulla al-Kuwari is an expert in oil and gas and is exploring the future of energy.



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