LNG industry rebounds in 2021 amid supply constraints, volatile prices

KARACHI: The global trade in liquefied natural gas (LNG) increased 6 per cent to 380 million tonnes during 2021, as many countries rebounded from the Covid-19 pandemic, according to the Shell’s latest annual LNG Outlook.

The rising LNG demand, combined with supply constraints, caused gas and LNG prices to remain volatile throughout the year. The prices reached record levels in October 2021, as Europe, with historically low storage levels, struggled to secure LNG cargoes to meet the expected winter gas demand.

“Last year showed just how crucial gas and LNG are in providing communities around the world with energy they need, as they strived to get back on track; following the difficulties caused by the Covid-19 pandemic,” Shell Integrated Gas, Renewables and Energy Solutions, Director Wael Sawan said.

“As countries develop lower-carbon energy systems and pursue net-zero emissions goals, focusing on cleaner forms of gas and decarbonisation measures will help LNG to remain a reliable and flexible energy source for decades to come,” he added.

LNG exports grew in 2021 despite a number of unexpected outages that dented LNG available for delivery. The US led export growth with a year-on-year increase of 24 million tonnes and is expected to become the world’s largest LNG exporter in 2022.

China and South Korea led the growth in LNG demand in 2021. China increased its LNG imports by 12 million tonnes to 79 million tonnes, surpassing Japan to become the world’s largest LNG importer.

During 2021, the Chinese LNG buyers signed long-term contracts for more than 20 million tonnes a year, signalling an ongoing role for LNG in coal-to-gas switching in powering key sectors and helping to reach its ambition to be carbon neutral by 2060.

Overall, the global LNG demand is expected to cross 700 million tonnes a year by 2040, a 90 per cent increase on 2021 demand. Asia is expected to consume the majority of this growth as domestic gas production declines, regional economies grow and LNG replaces higher-emissions energy sources, helping to tackle concerns over air quality and to help progress towards carbon emissions targets.

The volatility in the LNG prices emphasises the need for a more strategic approach to secure reliable and flexible gas supply in future to avoid exposure to price spikes.

An LNG supply-demand gap is forecast to emerge in the mid-2020s and focuses attention on the need for more investment to increase supply and meet rising LNG demand, especially in Asia.

LNG has a key role to play to further the use of renewable energy and as a backup in the event of intermittent supply. Brazil, for example, tripled imports of LNG during 2021, to over 7 million tonnes, as persistent dry weather led to weaker hydropower generation.

Successful efforts to reduce emissions from natural gas and develop cleaner pathways will bolster this role.

During 2021, momentum picked up for decarbonising the LNG value chain with several announcements around investments to address emissions.