LNG demand growth offset by more supply

BP’s Finley comments on supply growth from committed LNG projects and the need to be competitive in a global gas market

ALAN BAILEY

Petroleum News

There are two threads to the global liquefied natural gas market: the start of a climb in global demand and a growth in global supply, Mark Finley, BP general manager, global energy markets, told reporters during a press briefing in Anchorage about the BP Statistical Review of World Energy 2016. The global shipment of LNG is providing a means of connecting regional gas markets around the world, Finley said.

“In essence, the gas market is trending in the direction of looking more like the oil market. It’s a global market,” he said.

As gas demand in China weakened in the recent past, LNG prices fell. But last year saw LNG cargoes that had been intended for the Asian market being directed towards Europe, thus transmitting the falling price trend across the world. Now, while natural gas is likely to establish a position as the world’s fastest growing fossil fuel, BP thinks that global natural gas production will grow by 40 percent in just the next five years. That global growth will come from projects with committed financing, unaffected by the current down cycle in investment, Finley said.

While the good news for Alaska is the probable future growth in LNG demand, the challenge now is the scale of the competition in the market and the need for government and industry to work together towards a competitive LNG project. As in the shale oil and gas industry in the Lower 48, cooperative development can succeed, Finley said.

“Companies that find cooperative ways to build a competitive enterprise win,” he said.

BP’s Statistical Review characterizes the global energy markets as having been in a state of flux in 2015. Finley commented that the upheaval in the markets had both short term cyclical components and longer term structural trends. In the short term, relatively slow growth in the world economy, particularly in the industrial sector, weakened energy demand. On the other hand, long term changes in the Chinese economy are underway, with the rate of growth of the economy slowing and China trying to diversify its fuel mix, Finley said. In 2015 China saw the biggest growth in the world in nuclear power, hydroelectric power and renewable energy, he said.

Worldwide, renewable energy sources have received policy support and have also become increasingly cost competitive in their own right.

On the other hand, the pace of innovation of shale development in the United States has proved particularly dramatic. The U.S. shale industry has been driving productivity improvements for an unprecedented length of time, thus enabling shale oil to compete at lower oil prices than previously thought possible. And, with there never having been a shale revolution such as this before, nobody knows where the shale industry will go from here, Finley said.