Surplus LNG volumes, supplemented by new production in the US, Australia, Canada and East Africa, “will create the catalyst for a second natural-gas revolution, with far-reaching implications for gas pricing and contracts” – so says the International Energy Agency (IEA) in its latest World Energy Outlook, unveiled at a Westminster, central London press conference this morning.
The IEA predicts that gas will be the fastest-growing fossil fuel, as oil and coal lose share in the global energy mix. The second wave of LNG-production, coming from Mozambique, Tanzania and Canada will boost international trade in gas, driving a 30 per cent increase in the volume of LNG shipped around the world in the next 25 years.
LNG shipments are on course to exceed the volumes of natural gas delivered by pipeline, the IEA predicts. “By 2040, LNG will make up the bulk of long-distance gas trades for the first time,” it says.
Despite competition from renewables and from cheap coal, particularly in Asia, global consumption of LNG could increase by as much as 50 per cent, says IEA head of division World Energy Outlook Tim Gould.
Meanwhile, the global gas market is being transformed, as more destination-free cargoes come to market and as falling prices push buyers to renegotiate long-term supply contracts.
Future LNG cargoes will face less rigid destination clauses and suppliers will develop innovative ways to get cargoes to market, driving continued growth for floating storage and regasification units (FSRUs) and floating storage solutions, the IEA predicts.
“Every revolution has a moment when it becomes clear that the old rules no longer apply but when it is also unclear what new rules apply,” Mr Gould said. “This is the point that LNG has reached today. But at the same time, we need clarity for new final investment decisions to go ahead.”
Meanwhile, the IEA says government decisions will determine whether or not the international community achieves the goals set out in December under the Paris Agreement. “The era of fossil fuels appears far from over and underscores the challenge of reaching more ambitious climate goals,” said IEA executive director Fatih Birol.
As the global energy mix evolves, the IEA voiced concern about the feasibility of the Paris emissions targets, but also about future energy security, as low oil and gas prices have led energy firms to cut investment in new projects.
“Traditional concerns related to oil and gas supply remain – and are reinforced by record falls in investment levels,” the IEA said. “The report shows that another year of lower upstream oil investment in 2017 would create a significant risk of a shortfall in new conventional supply within a few years.”
In the longer-term, investment in oil and gas remain essential to meet demand and replace declining production, but the growth in renewables and energy efficiency lessens the call on oil and gas imports in many countries. Increased LNG shipments also change how gas security is perceived. At the same time, the variable nature of renewables in power generation, especially wind and solar, entails a new focus on electricity security.