By Kannan Arunachalam
For the next 20 to 30 years, LNG could be the most optimal solution in balancing energy demand and environmental sustainability as renewables gain more traction, said Mr Yuji Kakimi, President of Jera, at the Singapore Energy Summit Session 2: Slow Road to Recovery? The Outlook for Oil & Gas. However, there are two key challenges that have to be addressed before LNG could play a more influential role in the global energy mix.
1. Reduced LNG investments and the future implications
According to Mr Kakimi the global LNG market has been in overcapacity since 2015 due to Australian and US investments in LNG projects in earlier years (Fig. 1). This overcapacity is expected to remain till 2022 and is exerting a downward pressure on prices, causing the industry to enter a period of reduced investments in LNG projects. Subsequently, this would result in global LNG undersupply in the next decade, potentially leading to a spike in LNG prices.
2. Integrating regional markets
Another concern is the regional fragmentation of natural gas markets, said Mr Charif Souki, Chairman of Tellurian Inc. The global natural gas market is currently divided into the European, North American and Asian markets – as such, prices and market conditions vary.
With these varying conditions, North American market’s LNG could help to lower prices in the Asian market (in cases of high demand), when LNG is exported from the US without destination restrictions. This demand and supply adjustment would then result in arbitrage pricing. This could then pave the way for lower LNG prices in the Asian market, where consumers may also be better shielded from price volatility of LNG. Moreover, with shale technology development in the US, costs of drilling and production have been reduced and development of new projects is being completed within shorter periods of time. This could be key in ensuring the US’s role in the integration of natural gas markets.
Panelists agreed that Natural gas has an important role to play in the energy future. It is still more reliable than renewables in ensuring better electrification rates in developing countries, where less clean fossil fuels remain dominant in the energy mix. Also, natural gas is versatile. Brunei’s Deputy Minister for Energy and Industry, H.E. Dato Paduka Awang Haji Jamain bin Haji Julaihi, shared that Brunei is exploring the production of clean hydrogen fuel from natural gas.
To benefit from these, stable upstream investments and construction of liquefaction facilities are required for the region, said Mr Souki. It also crucial for financial institutions to review their financing policies regarding LNG, by taking into account changes in market conditions in the future.