LNG Q&A: Scholar Discusses the Role of Natural Gas in a World Changed by Covid-19

[Tom Kirkman + 8,860]

Interview posted on Natural Gas Intelligence.  This particular interview promotes mostly American-centric viewpoints for LNG, which is unfortunate.  The LNG world does not revolve around the U.S.  Asia and EU and Russia and Australia and Qatar will happily tell you this.

Still, the interview covers a number of issues, and I found it interesting.  Just be aware of the view below that U.S. LNG can be wielded as a geopolitical tool.  Excerpts below, full interview in the link. 

 

LNG Q&A: Scholar Discusses the Role of Natural Gas in a World Changed by Covid-19

Editor’s Note: The following segment is one in a series by NGI’s LNG Insight focused on exploring how the global liquefied natural gas (LNG) market works. The conversations in this series will also analyze news and the issues that matter most to the industry in North America and beyond.

Anna Mikulska is a nonresident fellow in energy studies at Rice University's Baker Institute for Public Policy and a senior fellow at the University of Pennsylvania’s Kleinman Center for Energy Policy. Her research focuses on the geopolitics of natural gas within the European Union, former Soviet Bloc and Russia. Her current interests include the potential use of natural gas as a geoeconomic tool and investigating ways to leverage U.S. LNG exports to bolster European energy security. She received a law degree from Adam Mickiewicz University, a master’s degree in international relations from the University of Windsor in Canada, and a Ph.D. in political science from the University of Houston.

NGI: Despite the Covid-19 pandemic and its impact on energy consumption worldwide, why has LNG demand remained relatively stable?

Mikulska: We all need to understand that LNG is very different than oil. First of all, it is not used for transportation the way oil is and that sort of demand has been hurt very much by the virus. LNG is used to produce electricity and heat houses. Because of this, demand won’t be hit as hard as oil. When we stay home, we still need electricity, heating and cooling. That’s beneficial for natural gas.

NGI: LNG demand is still expected to grow this year and beyond. What parts of the world will drive that growth?

Mikulska: While Europe has continued to play a key role during the pandemic because of its location and storage capacity, what generally will drive LNG demand is Asia. Asia, specifically China, has been restarting its economy. And LNG demand there will likely grow. In fact, it has been growing during the pandemic; it just hasn’t grown at the rate it would have without Covid-19.

Record volumes of U.S. LNG have gone to Europe this year, but that isn’t likely to be the case in the coming months, as we’re already seeing cargo cancellations for June. We will hopefully see demand recover in the Asian economies like China, Japan and South Korea, and as they recover, they will need natural gas.

NGI: Why is LNG demand so strong in Asia?

Mikulska: They’re gas-importing countries. Demand overwhelms supply, and there’s a lot of appetite for bringing in natural gas. But one thing that has stifled the use of natural gas in some countries throughout Asia is the lack of infrastructure. In India, a leading importer, there are problems distributing that gas because the pipeline network is not there. There are plans in the works there to expand distribution with trucks and pipelines, and that’s likely to continue in a lot of countries in the region.

Natural gas is also very cheap, and a lot of Asian countries have depended heavily on coal. Plans for coal-fired power plants will be costly. With natural gas being as cheap as it is right now, those plans might change because gas is more competitive with coal. Some of this demand is going to be impacted by the pandemic in the short term. It will recover, but that will depend on how quickly the economies pick up in Asia.  ...

 

... NGI: You noted that Europe has been a top destination for LNG. Do you expect that to continue being the case in the years to come?

Mikulska: The expectation is that Europe will continue to be a big market for U.S. LNG in particular, and much of that trade will happen on spot terms. But the European LNG market will not be developing at the same pace as other markets. The bulk of growth in demand will come from Asia.

I do think U.S. LNG is now a very important part of the European natural gas mix. In Western Europe, LNG has diversified supply. As you do that, countries aren’t exposed to higher prices or dominant suppliers. Western Europe has a very interconnected pipeline network and LNG terminals that have actually been under-used, so countries there can make sure they’re balancing their portfolio and take advantage of good spot prices when needed to substitute other supplies that are more expensive.

In central, eastern and southeastern Europe, the situation is different. Russia has been a dominant supplier there for years, and it was once the only supplier for many countries in the region. Russia has used that fact to impose a higher price in those countries and influence them geopolitically. This has prompted countries to bring in other suppliers.

U.S. LNG has been seen in that nature as part of energy security policy, so it’s not only the prices, but the role U.S. LNG and other LNG can play in making sure that Russia cannot use the dominant supplier strategy. For example, Poland has contracted enough gas from outside sources, including U.S. LNG, to completely eliminate the need for Russian gas. Such efforts are also leading to steep discounts for Russian gas in other places like Bulgaria and Lithuania.

Because of this, there is still going to be -- especially in central and eastern Europe -- an appetite for LNG. In general, the contracts are there.  ...