Global LNG demand set for steady growth
30 August 2024
The low density of natural gas makes it costlier to contain and transport compared to other fossil fuels such as coal or crude oil.
For more than a century after gas was recognised as a viable energy source, producers were unable to utilise the fundamental infrastructure that facilitated international oil trade – marine transportation.
Prior to the development of liquefied natural gas (LNG) technology, the transportation of gas was limited to movement by pipeline. The development of LNG revolutionised the manner in which gas is transported and consumed worldwide.
The first experimental shipment of LNG was made from Lake Charles in the US state of Louisiana to Canvey Island in the UK in 1958, aboard the vessel the Methane Pioneer. Since then, with improvements in technology and cost efficiencies, LNG has become an internationally traded commodity, the demand for which has risen through the years.
LNG production and transmission
LNG is natural gas that has been reduced to a liquid state by cooling it to a cryogenic temperature of -160 degrees Celsius. Natural gas is converted to a liquid in a liquefaction plant, or train.
Train sizes tend to be limited by the size of the available compressors. In the early years of development, train sizes had capacities of about 2 million tonnes a year (t/y), and a greenfield facility would often require three trains to be economically viable.
Improvements in compressor technology in this century have made it possible to design larger trains, to benefit from economies of scale. In the early 2000s, Qatar’s state-owned companies Qatargas and RasGas, in partnership with Western companies such as ExxonMobil and TotalEnergies (which was known as Total at the time), started operating trains with capacities of 7.8 million t/y.
When natural gas is in a liquid form, it takes up approximately one 600th of the space it would occupy as a vapour. Reducing its volume and its weight by half makes it easier and safer to transport across long distances on specially designed double-hull ships or vessels.
In the final stage of transmission, LNG is offloaded from a marine jetty to cryogenic storage tanks at the receiving terminal. It remains at -160 degrees Celsius during this process.
Benefits and applications
A slew of benefits and applications in various industries has fuelled the growth of LNG in the global economy.
LNG produces 40% less carbon dioxide than coal and 30% less than oil, therefore offering lower carbon emissions.
The LNG liquefaction process also releases very little nitrogen oxide, a harmful greenhouse gas, and sulphur dioxide, which can cause significant damage to terrestrial and atmospheric ecosystems.
With an energy density 600 times greater than natural gas, LNG can be used as an alternative fuel for sectors such as shipping. This helps to reduce the carbon footprint of industries that are slower to decarbonise.
On the socioeconomic front, LNG sales have facilitated the economic progress of producer nations, as witnessed in Australia, Qatar and Nigeria. Consumer countries also get access to a source of affordable and environmentally sustainable energy.
Separately, investments in LNG – in the form of LNG infrastructure building, as well as the expansion of production facilities – spur economic growth and help to stimulate job creation.
LNG is primarily used as a major source for electricity generation in powering industries, households and social infrastructure.
The chemicals industry is also one of the largest consumers of LNG, where it is mainly used for steam production and for heating, cracking and reforming units.
In the transport sector, meanwhile, LNG is one of the foremost sources of fuel, particularly for marine tankers and heavy surface vehicles, due to its high energy density compared to conventional fuels, coupled with its low emissions.
In addition, in food manufacturing, LNG is used as fuel for intense processes such as the steaming and drying of food produce.
Buoyant demand outlook
According to Shell’s LNG Outlook 2024, the global demand for LNG is estimated to rise by more than 50% by 2040, as industrial coal-to-gas switching gathers pace in China, and as South and Southeast Asian countries use more LNG to support their economic growth.
Global trade in LNG reached 404 million tonnes in 2023, up from 397 million tonnes in 2022, with tight supplies of LNG constraining growth while maintaining prices and price volatility above historic averages.
Demand for natural gas has already peaked in some regions but continues to rise globally, with LNG demand expected to reach about 625-685 million t/y in 2040, according to the latest industry estimates.
“China is likely to dominate LNG demand growth this decade as its industry seeks to cut carbon emissions by switching from coal to gas,” says Steve Hill, executive vice president for Shell Energy, in the company’s LNG Outlook 2024.
“With China’s coal-based steel sector accounting for more emissions than the total emissions of the UK, Germany and Turkiye combined, gas has an essential role to play in tackling one of the world’s biggest sources of carbon emissions and local air pollution.”
Over the following decade, declining domestic gas production in parts of South and Southeast Asia could drive a surge in demand for LNG as these economies increasingly need fuel for gas-fired power plants or industry. However, these countries will need to make significant investments in their gas import infrastructure, Shell said in the report.
The Shell LNG Outlook 2024 also notes that gas complements wind and solar power in countries with high levels of renewables in their power generation mix, providing short-term flexibility and long-term security of supply.
Three stages of growth
UK-based consultancy Wood Mackenzie, in its global gas strategic planning outlook, identifies three distinct phases of LNG market growth in the coming decade.
First, it says that continued market volatility will remain for the next couple of years as limited supply growth amplifies risk.
The pace of LNG supply growth and demand across Europe and Asia provide both upside and downside risks. Uncertainty over Russian gas and LNG exports further complicates the matter, making 2025 a potentially tumultuous year for supply, and therefore for prices.
This phase could be followed by a major wave of new supply, ushering in lower prices from 2026, Wood Mackenzie says in the report.
A muted demand response to lower prices across Asia would undoubtedly draw out the market imbalance. Conversely, supply risks cannot be ruled out. An anticipated escalation of Western sanctions on Russian LNG threatens to impact the overall supply growth scenario, increasing the potential for a stronger-for-longer market.
Beyond 2026, as LNG supply growth slows, prices will recover again before a new wave of LNG supply triggers another cycle of low prices in the early 2030s, Wood Mackenzie predicts.
Much will depend on long-term Asian demand growth. Booming power demand and a shift away from coal makes gas and renewables the obvious choice.
However, if LNG prices are too high, Asia’s most price-sensitive buyers could quickly return to coal.
On the upside, delays or cancellations to the expansion of Central Asian and Russian pipeline gas into China will push Chinese LNG demand higher for longer.
Region advances LNG projects with pace
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Diriyah tenders media district north offices
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War likely to boost oil and gas activity in North Africa
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The US and Israel’s ongoing war with Iran is likely to boost oil and gas project activity in North Africa, as the high-price environment encourages the region’s national oil companies to push ahead with projects that will allow them to increase exports.
In recent weeks, international oil and gas prices have stayed consistently far higher than levels seen before the US and Israel launched their attack on Iran on 28 February, killing Iran’s Supreme Leader, Ali Khamenei.
For the past two weeks, the price of Brent crude has remained above $90 a barrel and has hit a high of more than $109.
Similarly, the Dutch TTF natural gas benchmark has stayed above €45 per megawatt hour and hit a high of more than €62, up from €31 prior to the 28 February attack.
Gulf disruption
Over the same period, the long-term outlook for oil and gas exports from the GCC and Iraq has dimmed significantly as disruption to transport through the Strait of Hormuz has continued and damage to key regional oil and gas infrastructure has increased.
Damage to infrastructure has included attacks on oil and gas fields, as well as strikes on oil refineries, storage facilities and gas processing plants.
This damage means that even if the disruption to the transport of oil and gas via the strait ends quickly, the war will have a long-term impact on oil and gas production and exports in the GCC and Iraq.
On 18 March, Saad Sherida Al-Kaabi, QatarEnergy’s CEO and minister of state for energy affairs, said Iranian strikes on Ras Laffan Industrial City – home to the world’s largest liquefied natural gas (LNG) production and export facility – had knocked out about 17% of its LNG export capacity.
He said the attacks were expected to cause an estimated $20bn in lost annual revenue and that repairs could take three to five years to complete.
In Bahrain, the Sitra oil refinery, which has a throughput capacity of 405,000 barrels a day (b/d), has been attacked and damaged, leading Bapco to declare force majeure.
Strikes also hit the Ras Tanura refinery in Saudi Arabia, as well as the Habshan gas processing complex in the UAE.
North Africa
The high-price environment and the long-term impact of the ongoing conflict represent an opportunity for North Africa’s oil-producing nations, especially the region’s biggest oil and gas exporters: Algeria and Libya.
Higher prices will dramatically increase government revenues for these countries, giving them more capacity to invest in infrastructure projects, while also providing a significant financial incentive to boost production in the short term.
Both Algeria and Libya are close to European markets that have relied on oil and gas from the GCC and Iraq, and neither country relies on the Strait of Hormuz to transport exports.
The two countries also appear to be seeking to accelerate oil and gas projects at a time of heightened demand from energy-importing nations to secure reliable supplies.
Libya push
Earlier this month, MEED revealed that talks were under way at Libya’s National Oil Corporation (NOC) to potentially launch a new licensing round to award some of the unawarded exploration blocks from the 2025 licensing round.
In the downstream sector, Libya also seems to be pushing to progress projects.
Recently, US-based KBR was awarded a contract by Zallaf Exploration, Production & Refining of Oil & Gas Company to provide project management and technical services for the South Refinery Project in Libya’s southern city of Ubari.
Algeria drive
Algeria is also advancing projects in the country’s oil and gas sector.
On 8 March, Algeria’s president signed a decree ratifying the development agreement for a $5.4bn oil and gas project in the country’s Illizi South block.
The decree approved a contract signed in Algiers on 13 October 2025 between Algeria’s national oil and gas company Sonatrach and Saudi Arabia’s Midad Energy North Africa.
The contract granted both companies the rights to explore and exploit hydrocarbons in the Illizi South area.
The total investment of about $5.4bn will be fully financed by Midad Energy, including approximately $288m allocated to the exploration phase.
Amid disruption to global LNG supplies from Qatar, Italy and Spain are currently in talks with Algeria in an effort to secure increased LNG shipments from the North African country.
Algeria’s prime minister has also received requests from Asian countries, including Vietnam, seeking to secure both gas and oil shipments.
It is unclear how much spare capacity Algeria has to supply LNG to new customers, as much of the country’s production is sold in advance under long-term supply agreements.
However, current market conditions are still expected to increase the country’s revenues significantly, as Algiers is likely to be able to command much higher prices in any new agreements.
While the ongoing war is expected to deepen the crisis for many companies operating in the GCC and Iraq oil and gas sector, the opposite could be true for companies established in Libya and Algeria.
Although in recent years these two countries have been viewed as having more challenging business environments than the UAE or Saudi Arabia, companies that have invested in building positions in North Africa’s oil- and gas-exporting states could be well placed to make windfall profits.
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