The International Energy Agency sees LNG demand picking up but it also believes that for this to happen there must be a market change. It has called for “new rules of the game” to be established.
Commenting at the launch of the IEA’s World Energy Outlook, IEA executive director Fatih Birol said where the US’ shale gas boom from 2008 had been the first revolution, LNG was the second. “The US and Australia will provide a huge wave of LNG in the next few years, followed by Mozambique, Tanzania and Canada. As a result of that, we will see the share of LNG in international trade become much higher than that of pipeline [gas]. This will have serious implications.”
The IEA’s head of its WEO division, Tim Gould, noted the rise of “unattached cargoes looking for a home, and that is having an impact on prices and markets.” The rise of LNG is also having an impact on contracts such as destination clauses, he said. “Suppliers are becoming more inventive in the ways in which they find customers, as in the case of floating storage and regasification units [FSRUs] to reach markets such as Pakistan. By 2040, LNG takes the bulk of long-distance gas trade.”
He went on to suggest that in the evolution of markets there always was a point when it became clear that the old rules no longer apply. “But it’s not yet clear what the new rules are. We may have reached that point.”
The current state of overcapacity will be resolved by the mid-2020s, he said, but the outlines for the new order will need to be clear well in advance, to allow new investments to take place. A shift to a world of more abundant LNG would likely bring new pressures, not least in terms of pricing. Fatih Birol commented LNG would have to be priced competitively with coal in order to secure market share in Asia.