Liquified natural gas (LNG) remains one of our most important fuel supplies. In 2022, the UK imported a record amount of LNG to heat homes and power businesses.
UK LNG imports hit a record high of 25.6bn cubic meters (bcm) in 2022, up 74% on 2021’s numbers.
However, ongoing tensions and geopolitical events, such as the war in Ukraine, US president Joe Biden’s export ‘pause’ and Houthi attacks on Red Sea shipping, have put strains on the global energy supply chain.
Red Sea crisis
As around 24% of the world’s LNG supply is estimated to come from the Middle East, the Red Sea crisis has had a knock-on effect on the transport of liquefied gas by ocean.
QatarEnergy, one of the largest exporters of LNG, suspended its transport via the Suez Canal in mid-January, with many other companies following suit.
Although no LNG tanker has yet been hit, much of the world’s supply is still being re-routed via the Cape of Good Hope.
This comes as Qatar is set to announce new contracts to sell gas from expansion projects to Europe and Asia, according to Bloomberg.
Biden’s moves
In 2023, Qatar was leapfrogged by the US for the world’s position as leading exporter of LNG.
US energy envoy Amos Hochstein said he expected the US to “double” its capacity by 2028, assuring European allies that they would be “well supplied” in the future.
Hochstein was speaking in the aftermath of the US decision to stop approvals of LNG exports in late January.
Pause?
He said the US’s decision was part of a “pause” to understand the impact on the environment, potential oversupply of the market and the overall impact on the global economy.
While the Biden administration insisted it was a temporary measure, driven by a need to reassess the national security and environmental implications and not domestic politics, some US lawmakers expressed concerns.
Both Democratic and Republican politicians have pushed for a reversal of the decision, with Colorado senator Michael Bennet being the latest to signal his opposition.
Biden’s expected opponent in November, former president Donald Trump, is widely expected to reverse this move and other more environmentally-focused decisions if he wins the 2024 presidential election, insiders told Reuters.
Supply issues
In the short term, Biden’s decision is not expected to have much of an impact on supply to Europe and elsewhere.
Giles Farrer, head of gas and LNG asset research at Wood Mackenzie, told the FT: “The decision will not affect our forecast for US LNG exports out to 2028, but after that it could affect the trajectory and pace of the sector’s growth and have potential to tighten the market in the long run.”
Spot prices for the energy product have continued to fall in the aftermath of Biden’s decision.
North to south
Another important feature of recent LNG trade flows is how the war in Ukraine has impacted the market.
With Russia, previously a major supplier to Europe, considered out of bounds by many companies and countries, the US and others have stepped in to take advantage.
Francesco Sassi, research fellow in energy geopolitics and markets at Italian consultancy RIE said:
“The European energy security scenario has swiftly shifted from an east-west one, based on the German-Russian partnership, to a north-south and south-north one, where Norway and North Africa play a pivotal role.”
The future
Geopolitics and recent US decisions appear to have had a limited impact on the long-term future of LNG.
In a recent industry outlook, energy giant Shell predicted that short-term demand would be met by new supply, while in the longer term, demand was also expected to rise:
“Global demand for LNG is estimated to rise by more than 50% by 2040, as industrial coal-to-gas switching gathers pace in China and South Asian and South-East Asian countries use more LNG to support their economic growth.”
Asia in particular is expected to be a big purchaser of LNG, with the far east expected to consume most of the supply coming onto the market later in 2020.
As well as the traditional economic powerhouse of China, smaller countries like Bangladesh, the Philippines and Thailand have already upped their imports of LNG, with all three expected to increase their foreign purchases of the gas by at least 10 million tons per annum by 2040, according to Shell’s projections.