Thematic Report

Natural gas – The LoNG game

by Ken Shin / Apr 16, 2019

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As global demand for power continues to rise due to the increase in population, energy intensity and prosperity in fast-growing emerging economies, environmental initiatives are driving rapid expansion in renewables. However, while these new sources will diversify the mid- to long-term mix, fossil fuels will remain dominant for the foreseeable future. Against this backdrop, and aided by
abundant cheap supply and supportive environmental policies worldwide, the clean liquefied-natural-gas ship is set to forge ahead, leaving the polluting oil and coal tugboat in its wake. The transition towards a lower-carbon economy will have profound impact, driving investment implications as well as capital allocation in both upstream and downstream sectors.

China – the backbone of natural-gas demand
China is at the centre of this seismic transition, thanks to its environmental protection initiatives that are now a key policy priority. Amid a rebalancing of its economy from investment to consumption, we are seeing a strong emphasis on gasification and technological innovation to fight pollution. The country is seeing a transformational change in its fuel mix and is a significant driver of natural-gas
demand, underpinned by Beijing’s pledge to replace oil and coal. With its energy mix changing in the coming decade, liquefied natural gas (LNG) will be key to filling the supply gap.

Upcoming inflection point
The process of liquefaction and regasification requires heavy investment, compared to pipeline gas (PNG, or piped natural gas), which can be transferred without changing form. However, there are limited opportunities to build new inter-regional pipelines, which naturally caps their role in meeting future demand growth, leaving room for LNG exports to grow faster. The fundamental drivers for
LNG demand remain the same: increasing levels of industrialisation and power requirements; the transition towards a low-carbon economy, shifting away from oil and coal; growing opposition to greater nuclear power generation; abundant low-cost supply (in North America and the Middle East); and energy-supply security that ensures diversity and flexibility.

Deep dive
In a new report, The LoNG game – Setting our sights on the natural-gas horizon, we explore how these shifts will occur and, in the process, reshape energy sectors globally. “Unconventional” gas in the USA looks to be a game changer. We look at how America’s shale revolution could accelerate this transition, and how China might be the big swing factor in worldwide demand forecasts. We also examine the LNG market and highlight how the decision to, or not to, export low-cost North American shale gas as LNG will be critical to global markets and prices, and how this will also impact the industry’s pricing mechanism and trading activities.

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