Supply of LNG increasing despite economic downturn

Although there has been a global slowdown in economic activity, global liquefied natural gas (LNG) supply has increased, owing to a surge in supply projects approved before the drop in the price of gas in 2014, says KPMG energy economist Dr Requier Wait.

“On the demand side, gas-fired power provides an offtake for gas. For example, the US had a 19% increase in gas-fired power in 2015. The increase was supported by low gas prices, increased gas-fired generation capacity and retirements of some coal-fired plants,” he explains.

Wait adds that, globally, very low coal prices and strong policy support for renewables have, however, thus far dampened any major demand reaction to lower gas prices.

South Africa currently relies on coal for most of its power, which results in high carbon dioxide (CO₂) emissions, he points out. Therefore, there is a great deal of pressure on the country to move away from using coal to lower carbon emissions.

Gas could help to substitute some of the country’s coal-fired capacity and support renewables as part of moving to a cleaner energy mix, Wait adds.

Owing to a greater diversity of suppliers, he believes that the increased use of LNG in different markets worldwide could lead to gas becoming a commodity like oil because it is easily accessible.

Wait explains that the increased ease of transporting LNG has led to its being used in different markets, such as Japan, South Korea, China and Taiwan. These countries collectively account for almost two-thirds of global LNG imports. The recently expanded Panama Canal can now accommodate larger LNG tankers, which will help to reduce the transport time and costs from the US Gulf Coast to markets in Asia.

Natural gas is transported in the form of LNG, which is produced when natural gas is cooled to around –162 °C through the liquefaction process. During this process, the natural gas, which is primarily methane, is cooled below its boiling point, at which water, CO_{2, oxygen, particular sulphur compounds and certain hydrocarbons are either reduced or removed, KPMG explains.}

LNG is transported in double-hulled ships, specifically designed to handle the low temperature of LNG. These carriers are insulated to limit evaporation.

When LNG is received at terminals, it is mostly transferred to insulated and specially built storage tanks. They are either above or below ground and keep the liquid at low temperatures to avoid evaporation.

Wait explains that, although global demand for gas is currently increasing slowly, electricity generation holds potential for gas as it will lower carbon emissions and support intermittently available renewables.

He says the US shale oil and gas industry has shifted the dynamics of the global energy market, contributing to increased supplies and lower prices. The diversification of LNG suppliers and lower prices provide a favourable environment for LNG importing countries.

In the case of a county like South Africa, the pressure to take advantage of this situation is more pronounced, as the potential for domestic supply sources to become available in the medium term is high.