Gas demand projected to rise as oil sinks
Demand for gas, particularly liquefied natural gas, is expected to grow as the world transitions to cleaner energy but the sector also faces competitive challenges.
Wood Mackenzie noted that if LNG is to safeguard its position in the future energy mix, it would have to be carbon competitive with the emergence of a new ‘green’ LNG trend.
It noted that while the six ‘carbon-neutral’ cargoes from Shell and Jera being delivered or agreed with Asian buyers, and one long-term supply tender announced by Pavilion represent a very marginal share of the overall LNG market, the deals have caused a stir in the industry.
“Full carbon-neutrality from wellhead to consumption is an ambitious goal for the entire LNG industry, but targeted reductions in upstream and liquefaction processes can still achieve sizeable reductions,” Woodmac principal analyst Lucy Cullen said.
“Whether emissions are controlled in the value chain or as part of the sale through offsets, all carbon reductions come at a cost.
“And ultimately this will result in greater differentiation between projects by buyers and investors – with green LNG either sold at a premium or ‘dirtier’ LNG being penalised. “
She added that for green LNG to become mainstream, transparency and standardisation of emission measurements which does not exist today will be key.
While China is projected to increase its LNG imports from 68 million tonnes in 2020 to 83 million tonnes by 2022, it has also set itself an ambitious target of achieving net zero carbon dioxide emissions from its economy by the year 2060.
While the prospects for gas remain positive, global oil demand has been hit hard due to COVID-19 and changes to consumer behaviours.
“In the long run, global GDP might not return to pre-crisis levels and this causes a permanent loss in jet fuel and diesel/gasoil demand through to 2040,” Woodmac research analyst Qiaoling Chen said.
“However, the transport sector will remain a sustainable oil demand growth centre for at least another decade, particularly in developing economies in Asia Pacific, due to expansion of the middle class and relatively low penetration of electric vehicles.
“We estimate transport demand will decline by more than 7 million barrels per day this year, of which 62% is coming from the road segment.”