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Demand for cleaner-burning fuel driving LNG growth

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Strong demand for cleaner-burning fuel across Asia is the key reason for the rapid growth of liquefied natural gas (LNG) use over the past 12 months according to Shell’s LNG Outlook 2019 which has been released today.
A shift away from coal for power generation in the rapidly developing nations of Asia is one of the reasons for the rapid growth in demand for LNG over the past 12 months.
(Image via Shell).

Throughout 2018 global demand for LNG rose by 27 million tonnes to 319 million tonnes. Shell estimates that demand for LNG will reach 384 million tonnes in 2020. Global LNG supply throughout 2019 is set to rise by 35 million tonnes.

In Shell’s outlook, both Europe and Asia are expected to absorb all this additional supply. 

A rebound in new long-term LNG contracting in 2018 could revive investment in liquefaction projects. New LNG projects typically require long-term sales agreements to secure financing. From 2014 through 2017, LNG buyers had increasingly been looking to sign shorter, smaller and more flexible contracts. Shell warned in its 2018 LNG Outlook that this mismatch between suppliers and buyer needs would have to be resolved to enable developers to go ahead with projects. Encouragingly for the long-term health of the global LNG market, this trend has reversed with the average length of contracts signed more than doubled during the course of 2018.

As noted in the Outlook, much of the demand growth is derived from China where stringent efforts are being made to improve urban air quality and reduce reliance on the burning of thermal coal for power generation. These efforts saw China’s imports of LNG surge by 16 million tonnes in 2018, up by 40% from 2017.
The increase in long-term supply contracts bodes well for future investment in liquefaction facilities according to Shell's LNG Outlook Report 2019
(Image via Shell).

On the supply side, Australian LNG exports caught up with those of long-time leading supplier Qatar towards the end of 2018 and are expected to rise by 10 million tonnes in 2019. Both countries are well-positioned to supply rapidly developing economies across Asia with the gas they need to improve air quality by displacing coal-fired power and heating.

Commenting on this growth LNG demand, Maarten Wetselaar, Integrated Gas and New Energies Director at Shell, said:

“The continued surge in Chinese LNG imports has helped improve air quality in some of its biggest cities over the last few years. China’s success in making the air cleaner for millions of people shows the critical role that natural gas can play in providing more and cleaner energy to the world”.

“We saw Asian LNG demand growth exceed expectations again in 2018 and we expect this strong growth to continue. Investment in new supply projects is picking up, but more will be needed soon”.

LNG has played an important role in the global energy system over the last few decades, as more and more countries focus on using natural gas for their energy needs. To put this into perspective, LNG trade has increased from 100 million tonnes in 2000 to 319 million tonnes in 2018.

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Tags: Oil & Gas
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