LNG offers many opportunities to the various players willing to bet on it as a future energy for several reasons. Since it’s widely used, there are challenges and drawbacks to consider.

LNG gas for ships and heavy mobility offers many advantages:

First, with the tightening of IMO regulations on the use of sulfur, which LNG does not emit because it removes sulfur in the pre-liquefaction process, it therefore emits almost no sulfur oxides (SOx) or particulate matter (PM) when burned and emits less NOx (nitrogen oxides) and CO2 than other fossil fuels and is therefore attractive from an environmental perspective. Liquefied natural gas (LNG) is an environmentally friendly energy source that emits less carbon dioxide than coal or oil. Liquefaction reduces the volume to 1/600 of that of gas and allows it to be transported in large quantities by sea. It’s equally light density reduces the risk of explosion.

But there are three general drawbacks to using it as a fuel for ships: the installation of engines that can use LNG fuel, capital investments are also needed in equipment other than engines, such as large fuel tanks, and finally the cost at the time of new construction is much higher compared to conventional Fueled ships.

The LNG race:

Countries are therefore scrambling to get these LNG ships up and running and not be late, as the Japanese industry was slow to get into this race due to short-term profitability issues. Europe is leading the way in LNG-fueled ships, with most of these ships operating in Europe. This is due to the fact that companies in the region have taken the lead in accepting strict sulfur content regulations. Even outside Europe, LNG bunkering infrastructure is accelerating globally.

Supply and Demand:

One of the biggest challenges remains price spikes as quantities are restricted due to shortages. This is especially true in winter when demand is paradoxically booming. Concerns about low German gas storage levels this winter could continue to escalate, leading to sustained high electricity prices. German utility Steag GmbH has shut down its Bergkamen-A coal-fired power plant due to lack of supply. This is the fifth time the company has done so since early September, showing how logistics and high fuel prices could hamper the country’s thermal generation. We therefore observe a storage capacity and consequently a supply that decreases in winter, facing a demand that certainly fluctuates but explodes exponentially during this same period, posing some organizational concerns, and a mismatch between supply and demand.

A resilient industry:

This industry nevertheless remains resilient, having the capacity to resist shocks. Indeed, within a short time, demand levels should return to their pre-crisis levels. Medium-term forecasts, however, are much more affected by the crisis. The expected global demand for natural gas reaches more than 4,370 billion m3 per year in 2025, which represents an average annual growth rate of 1.5% per year for the period 2019-25, compared to the initial forecast which assumed an average growth rate of 1.8% per year over the same period.

While most of the 2020 losses are to be recouped in 2021, the Covid-19 crisis has more lasting impacts on natural gas demand growth. This translates into about 75 billion cubic meters of lost growth per year over the forecast period by 2025, more than the equivalent of the incremental demand for 2019.

So, what does the future hold for LNG:

The outlook for natural gas remains strong nonetheless, and the new challenges for natural gas are fueling the interest of many countries to investigate its use, but all of this remains highly dependent on the future direction of policies in China and India and the path of recovery in the post-crisis environment.

While almost all regions are expected to contribute to natural gas production growth over the next five years, half of the net increase in supply comes from North America and the Middle East.

So, there are many challenges ahead to achieve full democratization of LNG, but the many benefits it offers suggest that it is worth the effort.

alex.roman@surfeo.eu           Office: +33 (1) 55 17 14 73