BP outlook: LNG trade to rise along competition with pipeline gas

UK-based energy giant and LNG player BP is expecting to see a more competitive, globally integrated gas market as LNG volumes expand. 

With the focus on the forces shaping the global energy transition out to 2040, BP noted in its Energy Outlook that LNG trade is set to double reaching almost 900 Bcm by the target period up from around 400 Bcm in 2017.

The increase in LNG exports is led by North America, followed by the Middle East, Africa and Russia. As the LNG market matures, the US and Qatar will emerge as the main centers of LNG exports, accounting for around 40 percent of all LNG exports by 2040.

Asia remains the dominant market for LNG imports, although the pattern of imports within Asia is expected to shift, with China, India and Other Asia overtaking the more established markets of Japan and Korea, and accounting for around half of all LNG imports by 2040.

Europe will remain a key market, both as a ‘balancing market’ for LNG supplies and a key hub of gas-on-gas competition between LNG and pipeline gas.

The precise profile of LNG volume growth will depend on the timing and availability of the new investments needed to finance the considerable expansion, BP said in its outlook.

The cyclical nature of LNG investments means there is a risk that the development of the LNG market will continue to be associated with periods of volatility.

However, the diversity in supply is set to lead to greater competition between LNG and pipeline gas.

In BP’s ET scenario, European gas production declines by 40%, causing Europe’s import dependency to increase to around three-quarters in 2040.

Europe’s existing infrastructure means it has the capacity to increase substantially its imports of either LNG or pipeline gas, especially from Russia.

The greater ease of transportation means pipeline gas has a marked cost advantage over LNG; the main constraint on pipeline imports is concerns about Europe’s dependency on Russia for gas. In the ET scenario, the development of a globally integrated gas market eases these concerns, allowing Russia to increase slightly its share of European gas demand.

In China, despite sizeable increases in domestic production, demand growth outstrips supply, causing import dependency to rise to over 40 percent by 2040. Around half of these additional imports are met by incremental pipeline capacity from Russia and other CIS countries, and the remainder from LNG.

As in Europe, as well as pure cost considerations, China’s choice of gas supply may also depend on the energy security implications of different sources of supply.