Analysis

LNG industry trends

LNG at the crossroads: Identifying key drivers and questions

For an industry that is just over 50 years old, liquefied natural gas has matured rapidly and is now part of an upheaval in the global energy market. The liquefied natural gas trade has quadrupled over the last two decades and is set to double over the next two.

Factors impacting the future of liquefied natural gas

Deloitte’s first report in a new, four-part series on liquefied natural gas (LNG), LNG at the crossroads: Identifying key drivers and questions for an industry in flux, details a strengths, weaknesses, opportunities, and threats (SWOT) analysis, as well as seven key factors that we expect to affect the LNG industry over the next decade.

With over 50 years of shipments, the LNG industry’s characteristics are well understood, but will not necessarily remain the same. Key changes in the business landscape will alter the equation, with the potential to further expand the market, and shift the underlying foundation. While a SWOT analysis is most often used to discuss the company-level position, it is equally applicable to industry segments like LNG relative to others, as discussed in the report.

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What are seven factors influencing the LNG industry in the next decade?

Large, new volumes of LNG are entering the market from the United States and Australia, just as slower-than-expected economic growth impacts demand in Europe and Asia. As the industry navigates troubled waters, seven key factors will drive how LNG will grow in the next decade.

  • Slower economic growth: LNG consumption is driven by growth in Europe and Asia. Continued malaise has weakened expected demand growth in these regions. Further weakening in regional growth, particularly in China, would flatten natural gas demand in key importing countries.
  • Higher energy efficiency: Energy intensity of global growth has declined over the last few decades as high energy prices and environmental concerns have driven the adoption of higher efficiency technologies. New technologies and regulatory scrutiny could further this trend.
  • Excess LNG supply: New capacity coming online in the United States and Australia is weighing down on an already saturated market. As few as one in twenty planned projects may be needed to meet demand through 2035, and only those with lower costs, direct access to markets, and signed buyers will move forward.
  • Lower shipping costs: Shortening the trading distance with more flexible contracts can reduce the cost of shipping, driving an increase in volumes as incremental margins improve. This, combined with new lows in vessel day rates, will reduce the natural gas price differential required to drive investment.
  • Access to new markets: Japan and South Korea import half of all LNG volumes, historically paying a premium over shipments in the Atlantic basin. Future growth in trade will require new LNG regasification facilities to be built in more countries to meet growing global fuel needs. Floating liquefaction and regasification will play a large role in widening the global market.
  • Reaching new users: Utility-scale power generation drives much of the demand for natural gas. However, LNG as an alternative transport fuel for shipping, trains, or trucks, as well as a power source for remote small-scale grids, will provide a long tail of potential demand growth.
  • Improving market liquidity: Floating liquefaction and regasification combined with new countries building both import and export capacity can transform the current contract-dependent market into one that provides trading opportunity through transparent gas benchmarks and a flexible spot market.

Learn more about the LNG industry

Read our first report in a four-part series, and stay tuned for more reports in our LNG industry series. What can you expect? Deloitte Market Point’s analysis of US impact on the global LNG market fundamentals, the geology and geography of North American natural gas exports, and the impact of a fully globalized and liquid LNG market.

View past LNG industry reports from the Deloitte Oil & Gas practice:

View the archived March 10 Dbrief

LNG in flux: Key drivers in a changing landscape
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