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WoodMac: 2-degree world to strand 12 trillion cbm of discovered gas

Over three quarters or 77 per cent of new LNG supply are at risk under a 2-degree scenario, according to the latest report by global consultancy group WoodMac.

Under the scenario, gas demand comes under pressure from increased investments in renewables and energy storage in the power sector, as well as efficiency improvements and adoption of new technologies in non-power sectors.

Wood Mackenzie said last week that, in a 2-degree world, green hydrogen becomes a game-changer in the long-term emerging as a key competitor to gas consumption towards the end of 2040 and achieving a 10 per cent share in the total primary energy demand by 2050.

Principal analyst at WoodMac Kateryna Filippenko said: “With weaker global gas demand, the space for new developments will be limited. This is a significant challenge for companies considering FID on new projects.

In a 2-degree world, only about 145 billion cubic metres per annum (bcma) of additional LNG supply is needed in 2040 compared to 450 bcma in our base-case outlook. And if we consider imminent FID for Qatar North Field East expansion, the space for new projects shrinks to 104 bcma, down 77 per cent from our base case”.

Low-cost LNG suppliers Russia and Qatar are expected to be front-runners to fill the modest supply gap, while low Henry Hub prices would also mean competitive U.S. LNG projects. As Qatar and Russia pursue monetisation of their low-cost resource base and LNG demand starts declining post-2035, the strategic rationale for others to invest becomes questionable.

According to the firm’s Global Gas Model, in a 2-degree scenario, only a few Australian backfill projects will go ahead, pushing the country down the list of top LNG exporters, while the expansion of Canadian and Mozambique LNG capacities are unlikely to materialise.

As LNG demand starts declining post-2035, U.S. LNG underutilisation will be required to balance the market, similar to what has happened in 2020.

The category of projects most affected under a 2-degree pathway are discovered pre-FID developments. In 2040, production from these projects are expected to be about 1,300 bcm less compared to the base case outlook. Low prices could wipe out any new investment in more economically challenging projects, and only the most cost-efficient and flexible ones will survive.

Compared to our base case, the 2-degree scenario will leave about 12 trillion cubic metres of discovered gas resources stranded. This is more than three times the amount of gas produced globally in 2020.

Most of this will be in the U.S., Russia, and the Middle East. These regions will face decreasing export opportunities for their vast gas resources in addition to lower domestic demand for gas”, Filippenko added.

WoodMac also said last week that Australian operators were expected to sanction some $11 billion worth of gas projects in 2021, following a year of belt-tightening.

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