There are major uncertainties over demand in the global liquefied natural gas (LNG) market, and according to the latest in a series of LNG-focused reports from KPMG’s Global Energy Institute (GEI), this transforming industry is navigating through unchartered waters.
Indeed, the global LNG market is going through a massive period of change. It is globalizing as the buyer and seller numbers and types expand; pricing models are changing under the stress of increased supply and lower energy prices and there are major uncertainties over demand where participants’ expectations on price and plans for new supply hinges on anticipated demand.
The KPMG GEI report, entitled ‘Uncharted waters: LNG demand in a transforming industry’, highlights and discusses the short-, medium- and long-term demand uncertainties:
• Short-term: Japanese nuclear restarts, Ukraine crisis, LNG storage, trading house vertical integration
• Medium-term: New buyer alliances (JERA), Japanese deregulation, Chinese economic growth, new Russian pipelines, new importers
• Long-term: Asian urbanization, LNG in transport, renewable energy, climate policy. Looking ahead, global LNG demand is forecast to rise from 238 million tonnes per annum (Mtpa) to between 365 and 420 Mtpa in 2020 and up to 500 Mtpa in 2025.1
Mary Hemmingsen, Global Leader LNG, KPMG in Canada, comments:
“The massive build-up of LNG supply in recent years was predicated on growing Asian demand, which was anticipated to be 70 to 80 percent of global growth. It was expected this demand could be sustained at high prices. But emerging factors cast some doubt on these short- and medium-term rosy demand forecasts. Of the estimated 2020 global demand, 365 Mtpa is firm, while 55 Mtpa is ‘floating’ – moving between different markets, depending on price.”
In the long-term, the outlook for LNG demand is naturally more uncertain, but more promising. The KPMG GEI report outlines five main factors that are anticipated to shape LNG demand out to 2030 and beyond:
• Asian economic growth and environmental pressures: By 2025, depending on gas consumption growth and success in sourcing pipeline supplies, China’s LNG demand could be between 45.6 and 73.5 Mtpa – the difference between a South Korea or Japan-sized importer.2 Indian imports of 33 Mtpa would be comparable to South Korea’s today, with smaller Asian buyers taking 35 Mtpa collectively.
• Supply diversification: LNG is becoming available from more sources, with the US, Canada and East Africa entering the fray. This increases the confidence of buyers in relying on it as a secure energy source, and reducing dependence on shipping routes through the Strait of Hormuz or South China Sea. But LNG has to compete with proposed new pipelines, for instance from Russia, the Middle East and Caspian to Europe; and from Russia, Central Asia and Myanmar to China. Domestic unconventional gas is emerging in countries such as China, Argentina and Australia – depending on the setting, it may feed domestic demand and displace LNG imports or it may feed LNG export plants.
• Commoditization of LNG: The greater diversity of suppliers and buyers, the growing installation of floating regasification, and the growing liquidity of tradable LNG, tend to push it towards becoming a commodity like oil. Lower oil prices allow LNG to compete more widely in coal-to-gas switching, but conversely lessen the incentive for gas-to-oil substitution in transport. Despite this commoditization, major strategic players will seek to maintain LNG as a premium fuel, at least in some suitable markets.
• New markets: Geographic niches include the Middle East, Latin America and isolated island markets in South-East Asia and the Caribbean, now more accessible due to smaller, more flexible floating storage and regasification units. Sub-Saharan African markets such as South Africa, Kenya, Ghana and Benin are also emerging as possibilities. Sector niches include transport, with growing interest in LNG as a bunker fuel for ships. LNG trucking has also been attracting attention.
• Geopolitical upsets and other wild cards: Wars, sabotage, environmental disasters and political upheavals may emerge at unpredictable intervals to constrain LNG exports, interrupt shipping, damage economic growth in LNG importers or knock out vital pieces of energy infrastructure. At the same time, political transformations and technological breakthroughs can open up new areas of gas exploration and LNG development.
Read the full report: ‘Uncharted waters: LNG demand in a transforming industry’.
This report is one of a series exploring LNG markets – how they are changing, why, and how participants should react. It was written in collaboration with KPMG member firms and Robin Mills, energy strategist and economist.
To learn more about LNG, issues impacting the industry as well as opportunities, please visit www.kpmg.com/LNG.
Raymond Ng, Oil & Gas Leader, KPMG in China
“The Chinese government wants to expand gas consumption from 4 percent to 10 percent of energy demand by 2020. It is trying to make LNG imports viable without subsidies. The supporting gas infrastructure is a key bottleneck: the “last-mile” pipelines are not there. The government is no longer blindly doing infrastructure without looking at returns, but there are more sources of funding.”
Tsuneo Miyamoto, Oil & Gas Leader, KPMG in Japan
“JERA, a joint venture between Tokyo Electric and Chubu Electric, will buy more LNG than any country other than Japan itself. This will consolidate buyer demand, eliminating redundant purchases and increasing pricing power.”
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