Editorial: Getting greener no longer costs the earth [LNG Condensed]
Displacing coal-fired generation with gas is where LNG’s environmental benefits are strongest, and while the current surplus of LNG in the market is hurting producers’ revenues, the flipside of the coin is that low prices underscore LNG’s cost competitiveness and ready availability.
Renewable energy sources are expanding rapidly, which is more than welcome, but it is important also to look in the other direction – coal consumption is not falling fast enough.
In 2018, global coal use in fact rose by 1.4% to 3772.1mn tons of oil equivalent, according to BP data. This is almost ten times the size of 2018 LNG exports on an oil equivalent basis.
Moreover, the world’s first and third largest coal users, China and India, are also the two most dynamic LNG growth markets.
As environmental concerns rise and 2030 targets approach, any country heavily dependent on coal for power generation is fair game, from South Africa to Australia and to the belt of coal users running north-south down the centre of Europe from Germany into Poland and the Czech Republic.
The critical constraint is delivery infrastructure. LNG cannot compete with pipeline gas and coal, if it cannot reach the consumer.
Yet amidst the demand devastation of coronavirus, there is a lot of good news. Although unprecedented in its impact and still uncertain as to both its short and long-term consequences, Covid-19 will not reverse what has been a decade of patient consumer market construction.
According to the International Gas Union’s 2020 report, 23.4mn mt/yr of net regasification capacity was added in 2019, almost three times as much as in 2018, bringing the total to 821mn mt/yr. Average capacity use was also up 3% on 2018.
Moreover, the report puts new regasification capacity under construction, as of February 2020, at 120.4 mn mt/yr, including 14 new onshore terminals, 12 floating storage and regasification units and seven expansion projects, six of which are at onshore facilities in Asia.
The under-construction project list should see eight new countries added to the list of LNG importing countries in the next few years. These represent only 17.7 mn mt/yr of new capacity, but they are key stepping stones in transforming newcomers into more mature gas markets.
The vast majority of new construction is in developing Asian markets – notably China, which is building six new onshore facilities and expanding four, and India, which four newbuilds underway and one expansion project. Moreover, China’s CNPC announced in April a start to construction of a 5.6bn m3 underground gas storage facility in Xinjiang province, part of plans to build 23 gas storage facilities in coming years, almost doubling the country’s current 27 storage sites.
Behind the pipes and terminals, storage is critical infrastructure which allows countries to meet seasonal demand swings and increase their confidence in raising their exposure to the LNG market.
Earlier in April, China’s National Development and Reform Commission (NDRC) released a document calling for the construction of gas storage facilities, gas pipelines and LNG infrastructure to be fast-tracked. Gas and LNG clearly has the support of China’s leadership and the country accounts for a full half of the world’s coal consumption.
India’s market depth and coal-to-gas switching potential is also immense and enhanced by the low level of gas penetration across huge swathes of the populous country.
This is what makes initiatives such as a recent grant award by the US Trade and Development Agency to develop ‘virtual’ gas supply chains in India so important. It will accelerate the country’s gas use and improve energy access in areas not served by the current pipeline grid.
LNG needs to open up traditional coal country at speed.