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2021-02-10 11:35:00

LNG DEFICIT

LNG DEFICIT

ARGUS - 09 February 2021 - The company believes LNG's cost competitiveness will ensure supply growth even if demand is low, writes Elaine Atwood.

A lack of new final investment decisions (FIDs) and mounting worldwide demand could lead to an LNG supply shortfall by the end of this decade, Russian firm Novatek has said.

LNG supply could fall short by about 150mn t/yr by the end of this decade without additional FIDs, an issue that "needs to be addressed", Novatek chief financial officer Mark Gyetvay said at the virtual European Gas Conference.

Novatek expects worldwide LNG demand to continue to grow even as countries decarbonise their energy systems. The idea that gas is "falling out of the equation is grossly overstated", Gyetvay said.

Gyetvay expects increased coal-to-gas switching in the power sector, hydrogen production and gas being used in tandem with intermittent renewables for power generation to boost gas demand in the coming years.

LNG's cost competitiveness will ensure supply growth even in a lower-demand scenario, as "the lowest-cost producers will prevail", Gyetvay said.

And the flexibility provided by LNG will continue to be useful over seasonal demand fluctuations, as demonstrated by the recent spike in northeast Asian demand, Gyetvay said.

The firm expects gas demand in Asia to grow "very strongly" despite China's net-zero emissions target for 2060, and anticipates that 80-85pc of its LNG output will be delivered to the region in the future.

But new FIDs will need to be made to meet the rising demand, Novatek said. While spot northeast Asian LNG prices spiked earlier this month, firms are unlikely to make FIDs based on "inflated prices", Gyvetvay said.

Novatek still expects to make an FID on the 5mn t/yr Obsky LNG terminal this year, having postponed it from last year.

Gyetvay foresees a move away from FIDs being secured by traditional long-term supply contracts towards a model involving equity sponsors, given the rising number of firms seeking to secure volumes on a short-term basis.

The company expects supply sold under long-term contracts to fall to almost 50pc by 2025, from 65-75pc five years ago.

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Tags: LNG, GAS, NOVATEK