A new wave of liquified natural gas projects may be around the corner, energy experts from Standard and Poor’s forecast, but the sector faces threats from battery storage technology as well as financing headwinds.
“We are going to get to the point in 2022 here where the market, we believe, is going to need more LNG,” Ira Joseph, the head of gas and power for S&P Global Platts, said last week at a discussion of the LNG sector.
In the past decade, a surge of LNG production in the US and Australia has created an abundance of supply in the global market. This has slowed project development, with just one – the scheme in Mozambique – reaching a final investment decision in the past 12 months, according to Joseph.
This lack of new projects means that demand will outpace supply by around 2022, Joseph believes. Since projects typically take three to four years to build, the next wave of final investment decisions should be around the corner.
“The big thing that is taking our time is [analysing] how people are going to finance the next wave,” said Richard Langberg, a director in S&P’s global energy ratings practice. “It is a difficult market. People are trying to figure it out.”
Several factors complicate the global LNG market. Qatar, the world’s largest exporter, will see nearly two-thirds of the 90 billion cubic meters under contract expire over the next decade. While for Japan, supply of the gas under contract has exceeded demand.
“They signed up for all this LNG about five years ago, and they don’t need it all,” Joseph said.
At the same time, Saudi Arabia is for the first time looking seriously at importing large quantities of natural gas, making it a “major wild card” in the market.
While LNG has traditionally been sold through long-term contracts, the structure of the next generation of contracts is likely to tend towards spot pricing. “Everyone wants more flexibility and shorter contracts and the producers are just not used to that,” Joseph explained to Infrastructure Investor. “It creates a very different risk profile for them.”
The pace of renewables and battery storage growth can also be a game-changer. While LNG and renewables may complement each other, battery storage is likely to compete with natural gas for peak and intermittency use.
“That, it seems to me, will develop quicker than anybody thinks, because that is just historically how things have developed,” Langberg said of battery storage technology.