Natural and liquefied natural gas market will remain bullish in 2019 due to the International Maritime Organisation 2020 regulation limiting high sulfur products and China’s decision to consume more LNG and liquefied petroleum gas (LPG).
Under the new IMO 2020 regulation, ships cannot use fuels with more than 0.5 percent of sulphur, compared with 3.5 percent now, unless equipped with so-called scrubbers limiting the emissions.
Natural gas consumption continues to expand across China’s economy, with base demand supporting growth. Adoption of low-sulphur fuels will accelerate LNG growth in countries such as China and India with elevated carbon footprints.
China’s current five-year plan calls for shifting the generation mix to 55 percent coal by 2020 from 67 percent today, with natural gas the biggest beneficiary, according to a Bloomberg Intelligence report.
Shandong province plans to become a hub for LNG imports by increasing storage capacity to 4 billion cubic meters, while constructing enough re-gasification capacity to handle 34.3 million tons a year across seven terminals by 2020.
China’s natural gas investment is focused on increasing supply. China Petroleum is targeting $22 billion to offset domestic declines while boosting output, as the Belt and Road initiative fuels spending on ports, railways, pipelines and producing assets.
The expansions will provide strategic reserves and natural outlets for equipment built by Chinese manufacturers and shipyards. The Belt and Road strategy aims to create trade links across Asia, Africa and Europe, while allowing China to control investment, infrastructure, job creation and full-cycle economics.
The capture of critical reserves is important for China to be self-sufficient in natural gas, given growing European and Asian LNG demand.
China is focused on increasing consumption of LNG and liquefied petroleum gas (LPG) by taking a multipronged approach of investing in pipelines, infrastructure, long-term contracts and gaining control of reserves in the South China Sea.
China’s domestic natural gas production will be hindered by complications of depth and location, elevating costs. The Belt-and-Road Initiative remains the driving principle of the infrastructure build out and supply-chain diversification.
There is also rising LNG spot market activities that point to availability and possible oversupply, which in turn imply downward pressures on prices. However, energy experts in Nigeria suggest this may not impact significantly on Nigeria’s LNG exports because Africa’s largest crude oil producer has long-term sale and purchase agreements (PSAs) on its cargoes with buyers.
“Except the situation lasts for much longer, this will not impact significantly on Nigeria Liquefied Natural Gas (NLNG) Limited’s exports,” Ayodele Oni, energy partner at Bloomfield Law-Practice said.
Traditionally, the LNG market was dominated by long-term off-take contracts. Without such arrangements it would not have been possible to make the significant capital investments in extraction, transportation, storage and re-gasification that are all necessary to build the LNG supply chain.
“Global LNG market is currently soft due mainly to natural gas supply glut in the United States of America. Economic growth in China, India, South Korea and South East Asian countries are also critical factors. Slow economic growth in Asia will dampen the market,” Wumi Iledare, professor of energy economics at the Centre for Petroleum, Energy Economics and Law, University of Ibadan, said in a phone interview, but, “The spot market will not replace futures market in the long run though.”
