LNG: Post Covid-19 Market Outlook

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Many people and a number of geographical locations in need of energy are located far from natural gas fields, making pipelines too impractical or costly to build, thus having their energy demands uncovered. To tackle this problem, gas can be cooled to make a liquid, shrinking its volume for easier, safer storage and shipping overseas. The product is called Liquified Natural Gas (LNG), which is largely composed of methane (85 to 99%) and has an odourless, colourless as well as non-toxic form. To enable maritime transport, the natural gas is cooled down by means of a refrigerated cycle (compression, condensation, expansion, evaporation) that transforms the gas into a liquid form at -160°C. In this physical state, LNG takes up 1/600th of the volume of gas in its natural form, making it economical to be stored in large-volume containers and transported over long distances via thermally insulated tankers. The liquefaction, storage and regasification steps can take place both in land-based plants and on vessels. There are multiple types of vessels for each process such as the FSRU: Floating storage and regasification units or the FPSO: Floating production, storage and offloading systems. When LNG reaches its destination, it is turned back into a gas at regasification plants. It is then piped to homes, businesses and industries where it is burnt for heat or used to generate electricity.

There are three major types of LNG carriers, whose major differentiating characteristic is the tank, which stores the cargo at an ultra-low temperature. These are: a)Moss type, b)Membrane type, and c)Self-supporting Prismatic shape IMO type B (SPB).

Moss type (Independent spherical cargo tanks)

The spherical cargo tank is independent from the hull, and each tank uses its own structure to maintain the internal pressure. This type simplifies quality control because it causes relatively less boil-off gas, and construction involves less welding than other styles. Vessels with continuous tank cover over all the spherical tanks were first delivered in 2014

Membrane type

Cargo is maintained at a lower temperature to absorb the expansion of the gas by using thin inside tanks and covering them with a wrinkled stainless steel “membrane.” It features high visibility toward the front of the vessel because of greater space efficiency in the cargo tanks and minimal protrusions on the deck. Ethane carriers adopt this style.

Self-supporting Prismatic shape IMO type B (SPB)

This self-supporting prismatic shape tank uses aluminium alloy or stainless steel, with heat insulation on the exterior. This type of tank has the advantage of allowing for broader use on deck because it is more easily fitted on the hull in comparison with spherical tanks and has no protruding structures on deck.  

LNG is steadily gaining traction in the energy mix, emerging as a cost-competitive and cleaner transport fuel, especially for shipping and heavy-duty road transport. LNG trade increased from 100 million tonnes in 2000 to nearly 319 mio mt in 2021. The price of LNG is based on the price of the underlying commodity – natural gas – plus liquefaction and transportation costs. Natural gas has traded in a $.5 per MMBTU range for the past 3 years.

The main LNG producers are the United States, Australia, Qatar, Russia, Malaysia and Nigeria.  After years of Australia and Qatar dominating the LNG export market, the United States is not only the leader in natural gas production, but is set to become the world’s biggest liquefied natural gas (LNG) exporter in 2022, surpassing Qatar and Australia. 

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The major importers are China and Japan.  Due to its surging energy demands and expansion of LNG import capacity, China has surpassed Japan in 2021 as the largest importer of LNG. In 2021, China’s LNG import capacity increased further to an estimated 12.9 Bcf/d when expansions at four existing terminals were completed, and by 2024, China’s LNG import capacity will expand by an estimated 4.0 Bcf/d, according to the International Gas Union. In Europe, although gas consumption rose by over 5% year-on-year between 1 October 2020 and 30 April 2021, LNG imports fell by almost 30%.  During this period Europe’s increased gas demand was met by pipeline deliveries as global LNG supply was unloaded in higher-priced Asian markets.

Globally, both the demand and supply of LNG ships has been rising rapidly in the past 15 years, as LNG carriers increased from 300 to over 700 from 2018 to 2022. As it can be reasonably inferred, this increase also led to seaborne LNG skyrocketing in the same period.

Global LNG demand has hit record highs each year since 2015, due mostly to surging demand in China and the rest of Asia. 

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Concerning international trade routes, the Pacific is the most significant trade region, with intra-Pacific trade accounting for 41% of the global total. Both intra-Atlantic and Middle East-Pacific trade held 19% of the worldshare, at 69mt and 67mt respectively. Meanwhile, the share of Atlantic-Pacific trade grew from 11% in 2019 to 13% last year, standing at 46mt. This came on the back of increasing US-Pacific trade, which grew by 27% year-on-year to 22mt, and was further aided by exports from the Russian Arctic to the Pacific, which more than doubled year-on-year to 5mt. Growth in long-haul US-Pacific trade provided a notable ‘boost’ to the average sailing distance. As such, global tonne-mile trade grew by 6.3% in 2020, well above the rate of growth in tonnes (1.1%). 
Despite the record high levels of natural gas and LNG marked over the past months, analysts forecast that prices will keep their upward trend until May 2022 and may not start to decline until 2023. The main contributing factors could be epitomised by the insatiable appetite of China and the intense geopolitical tensions between Russia, Europe and recently Ukraine. Actually, China’s demand for LNG already surged from 4Q21, despite its zero-Covid policy, making it along with Japan the largest importers of Russian LNG. Tensions between Europe and Russia on grounds of the NordStream 2 pipeline continued to rise, in combination with historically low gas reserve levels leading to an unprecedented increase in spot prices for LNG. The factor of Ukraine and Russia can only be characterised at the moment as the <unknown x>, where the scenario of war is considered uncertain but probable. All things taken into consideration, it is very likely that in the following months, spot prices of both Natural Gas and LNG will continue to rise fuelled by global post Covid economic development which in turn is already sparking an upward spiral affecting the whole energy chain.

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