A slowing Chinese economy and upcoming elections in India could both impact a hitherto robust demand outlook for the LNG industry, which currently occupies an enviable place in the energy universe. Demand growth has been on a substantially higher trajectory than any other hydrocarbon when compared with global GDP or the slowdown in international trade. LNG is on a virtuous relatively low-priced path of expansion in which its primary competitors are coal and oil products.
Global LNG supply has grown by nearly 30 percent over the last three years. Rather than resulting in a much-predicted glut, it has been absorbed by coal-dominated economies, principally China, in an effort to reduce both local air pollution and global carbon emissions. This is resulting in a new wave of project FIDs (final investment decisions), which should keep LNG pricing competitive.
While the industry has focused on the potential of new markets in transport, with some justification, these to a large extent remain icing on the cake in comparison to the potential for industrial gas demand, including fertilizer and petrochemicals, and the expansion of city gas use in Asia. This demand should be underpinned by coal-to-gas switching in the power sector in both Europe and North America, despite the growth of renewable energy sources.
A key reason for the underestimation of LNG demand has been the change in investment cycle times brought about by Floating, Storage and…