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Energy Transition Could Cut Future LNG Demand by 75%, Leave Long Trail of Stranded Assets

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  • Dec 16, 2020

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Renewable energy, energy storage, energy efficiency, and green hydrogen are set to draw away more than 75% of future demand for liquefied natural gas (LNG), analysts at Wood Mackenzie warned last week.

In a forecast connected to the Paris Agreement goal of keeping average global warming “well below” 2.0°C, “the consultancy said its scenario for worldwide gas demand is going to come under pressure as power sector investments increase in renewables and energy storage,” Natural Gas Intelligence reports. “More gas consumption also would be sapped by efficiency improvements and as new technologies are adopted beyond the power sector.”

“With weaker global gas demand, the space for new developments will be limited,” said WoodMac principal analyst Kateryna Filippenko. “This is a significant challenge” for companies deciding whether to finalize their project investments.

All told, a 2°C scenario “will leave about 12 trillion cubic metres of discovered gas resources stranded,” mostly in the U.S., Russia, and the Middle East, she added. “This is more than three times the amount of gas produced globally in 2020.”

Under that scenario, “only about 145 billion cubic meters/annum (bcma) of additional LNG supply is needed in 2040 compared to 450 bcma in our base-case outlook,” Filippenko explained. After factoring in a new gas field likely to come online in Qatar, “ the space for new projects shrinks to 104 bcma, down 77% from our base case.”

The study points to green hydrogen as a “game=changer in the long term, emerging as a key competitor to gas consumption toward the end of 2040 and achieving a 10% share in the total primary energy demand by 2050,” the news story adds.

A couple of recent analyses have predicted the current wave of interest in hydrogen beginning to deliver practical results around 2030, with renewably-generated “green” hydrogen becoming cost-competitive with the “blue” variety derived from fossil gas around that time.

The WoodMac analysis factors in the C$40-billion LNG Canada megaproject in British Columbia, which is already under construction, as well as a massive project in Mozambique led by colossal fossils ExxonMobil and Total SA. After that, the consultants see the remaining demand being soaked up by Russia, Qatar, and some low-priced projects in the United States.

But “as Qatar and Russia pursue monetization of their low-cost resource base, and LNG demand starts declining post 2035, the strategic rationale for others to invest becomes questionable,” Wood Mackenzie wrote.

When that happens, would-be LNG developers “will have a difficult decision to make,” said WoodMac research analyst Evgenia Mezentseva. “On the one hand, there will be windows of opportunity for investment decisions. But on the other hand, the long-term value of these investments might be at risk by the prospects of a shrinking market space combined with competitive pressure from lower-cost producers.”

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