Liquefied natural gas (LNG) is the most environmentally friendly fossil fuel. It is an excellent choice to cut greenhouse gas emissions and aid in the fight against global warming in the context of the current energy transition.
Low prices and oversupply are plaguing the LNG business. The LNG market was already on the verge of overload in 2020 and 2021, even before the COVID-19 outbreak. Due to the pandemic, reduced gas consumption has added to excess supply, causing market instability. Furthermore, a prolonged period of reduced oil prices and increased rivalry among gas supply sources as new supply enters the market have eroded margins, placing pressure on gas and LNG producers.
Gas availability has risen due to recent developments in terminals and pipelines that link gas to users. These and other factors, taken together or separately, present a possibility for faster demand growth.
In consuming countries, LNG costs have improved dramatically compared to oil and coal during the last decade. LNG prices were often substantially higher than coal. LNG spot prices have recently been nearly comparable to coal, removing the trade-off. Although market fundamentals predict that LNG’s deficit to oil will endure and its premium over coal will be less than in the past, prices may rebound somewhat over the next three to five years. Increased usage of carbon pricing could help LNG compete more effectively against coal and oil.
Feasibility of gas
Gas is the cheapest source of firming capacity in the power system in most markets. When coal-fired power plants operate in a flexible peaking mode, their thermal efficiency declines, and maintenance costs rise, making them unsuitable for providing flexible electricity. On the other hand, though batteries can withstand for hours, they are two to three times the cost of a gas-fired power plant. While the cost of batteries may reduce over time, they are unlikely to become a financially feasible solution.
Improves air quality
LNG reduces not only greenhouse gas emissions but also impurities in the air.
The fast rise of cities draws attention to the environmental and health effects of air pollution from electricity generation, primarily when power stations are near urban areas. In power generation, switching from coal to gas is necessary since it is the most efficient approach to reduce pollutant emissions. In the industrial sector, switching from coal to natural gas can help reduce greenhouse gas emissions while also improving air quality.
The rising rivalry among the suppliers created greater room for individual buyer demands for liquidity in traded markets. LNG supply capacity can respond swiftly to variations in local gas demand and supply, thanks to the development of floating storage and regasification unit (FSRU) technology. In fact, FSRUs enable any country with a coastline to obtain LNG within two years.
Natural gas demand is expected to rise sharply in 2021 and will continue to grow if governments do not enact aggressive policies. By 2021, demand is predicted to increase before slowing to an average annual growth rate during the next three years. Natural gas demand growth in 2021 is primarily driven by economic recovery from the Covid-19 crisis. Still, it is expected to be conducted in equal parts by economic activity and gas replacing other more polluting fuels like coal and oil in sectors like electricity generation, industry, and transportation in the following years.