LNG supply gap may form as investment drops
The global liquefied natural gas (LNG) industry could face a supply shortfall in the next five years as low prices begin to discourage investment in new production, major producers have revealed.
Gas flaring is a process in the Oil & Gas Industry that has been recognised as a leading contributor to greenhouse gas emissions, and consequently global warming. Based on satellite data, more than 150 billion cubic metres (or 5.3 trillion cubic feet) of natural gas is released into the atmosphere each year through natural gas flaring and cold flaring operations.
Transporting LNG is a more emissions-friendly means of natural gas disposal. LNG is natural gas (predominantly methane, CH4, with some mixture of ethane C2H6) that has been converted to liquid for easy storage or transport.
However, as investment waivers, LNG suppliers may not be able to meet the needs of buyers such as Japan – the world’s biggest importer of LNG – at a time when reducing emissions is crucial to decrease global warming.
“We are facing global overcapacity that is putting pressure on prices,” Total SA Chairman and Chief Executive Office Patrick Pouyanne told the Gastech conference last month. As a result, “the industry is entering a period of reduced investments … (that) could result in a lack of supply in five years. We must carry on investing for the future,” he said.
LNG projects typically require billions of dollars of investment and many years of development. The industry has usually relied on long-term contracts linked to oil prices to ensure producers can get financing on favourable terms. However this has changed in recent years as buyers – led by Japan and other Asian countries – push for lower prices and better contract terms. The recent drop in oil prices has also meant some planned projects are no longer feasible.
The future of LNG
The Oil & Gas Industry is increasingly aware of the role it plays in global warming and this has led to a reduction in gas flaring. In November 2015, the COP21 climate change conference in Paris saw a number of oil and gas companies sign a pledge to reduce routine gas flaring to zero by the year 2030. Many oil and gas companies will be faced with finding an alternative process for the safe disposal of natural gas and this could lead to a much needed uptake in LNG.