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LNG Market: Current Situation and Expectations - Gökberk Bilgin

At the beginning of 2020, the liquified natural gas (LNG) market was confident of the growth, and several countries were investing in vast amounts on establishing their LNG facilities. According to Shell’s 2020 LNG Outlook, global demand for LNG grew 12,5% from the previous year to 359 million tonnes. China was once again among one of the top three LNG importing countries, as it increased its demand by 14%.

The flexibility of the market also becomes stronger with the massively increasing number of spot cargo deliveries in 2019. Around 1600 cargo deliveries meant a nearly 250% increase compared to previous years. That allowed customers to create new mechanisms and a wider variety of indices on the spot market. The role of oil prices in determining natural gas prices had declined in this period.

According to the same report, the future looks bright for the LNG market. In the long term, the LNG demand is expecting to double to 700 million tones by 2040, according to forecasts as a low-carbon product. This demand mainly will come from Asian countries China, Japan, and South Korea. Furthermore, Shell also estimates that LNG as a marine fuel could reach 30 million tones a year by 2040, as infrastructure develops, and more LNG ships are ordered.

These projections are continuing to attract new investors to the market. For instance, Saudi Arabia focuses on becoming a major LNG supplier of the world and increasing their investments in this area. Russia also builds LNG terminals and strengthen their role in the market. High expectations help to finance the projects, and many exploration activities are being held in different parts of the world. Today, eastern and western Africa, East Mediterranean, and South America have the potential to supply further LNG to the world. Despite being unsuccessful, China also continues to invest in developing its LNG supply. Overall, the agents in the market expect a bright future.

However, with the Coronavirus incident and warm winter conditions, high expectations brought new questions into considerations. In the “Enerji Sohbetleri” podcast series in two episodes Barış Sanlı and Sohbet Karbuz discussed the current conditions and future expectations in the market. Sohbet Karbuz stated that China had taken advantage of the Coronavirus situation by declining two LNG shipments in February by showing force majeure clauses.

Despite declining the US LNG that depend on oil-based contracts, China continued to trading in the spot LNG market and took advantage of the prices. Of course, political moves play an essential role in energy trade, but the warm weather creates another problem for the suppliers. Due to a decrease in demands, stocks are filled up, and companies are having a problem establishing long-term contracts. It is still being discussed whether these winter conditions are temporary or the new normals as a result of global warming. To understand this phenomenon, we still need to wait for a few more years.

Despite the positive projections, we should not ignore that Shell itself is one of the significant investors of LNG. As a significant player, they may follow a policy to promote LNG and create a perception that it will play a more critical role as the years go by.

According to Sohbet Karbuz, the developments in the electric cars and transforming the heating source to electricity as the Netherlands did, the role of shale gas might not reach these potentials. Additionally, the part of nuclear facilities in Japan can lead to decreasing demands as well.

To have further knowledge about the issue, you can check the Shell LNG Outlook 2020 or listen to the podcasts made by Barış Sanlı and Sohbet Karbuz that are available on Spotify.


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