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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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Indrajit Sen

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    The clearest evidence of that pivot is what has actually broken ground at Oxagon recently. At a time when Neom’s recent news flow has been about contract terminations, Oxagon’s has been about starts.

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    For Neom, the project answers a question that has dogged the gigaproject for years: namely, what, beyond real estate and tourism, Oxagon actually sells.

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    As Aramco prepares to issue the main EPC tender for the Jafurah sixth expansion phase, it is also at an advanced bid evaluation stage for the programme’s fifth phase.

    MEED reported in August that China Petroleum Engineering & Construction Company (CPECC) had emerged as a frontrunner to win the main contract for the Jafurah fifth expansion phase, based on Aramco’s initial evaluation of proposals.

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    Aramco had set 19 July as the final deadline for proposals, and contractors submitted their bids by that date, MEED previously reported.

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    Along with evaluating bids for EPC works on the fifth expansion phase project at Jafurah, Aramco has also recently kicked off EPC works on the fourth expansion phase.

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    In July 2024, Aramco issued a non-binding letter of intent to a consortium of Tecnicas Reunidas and Sinopec Group for the EPC contract for phase three. The value of the contract is estimated at $2.24bn.

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    The third phase scope of work also includes building a 230kV substation to power the new gas compression plants, and installing other utility units, piping systems and safety equipment.

    The selection of contractors for the third expansion phase came within weeks of Aramco officially awarding EPC contracts for the second phase, which aims to raise the field’s processing potential to up to 2 billion cf/d of raw gas.

    Aramco awarded 16 contracts, worth a combined total of about $12.4bn, for the second expansion phase on 30 June 2024.

    The EPC scope of work on that project involves the construction of gas compression facilities and associated pipelines, and the expansion of the Jafurah gas plant, including the construction of gas processing trains, utilities, sulphur and export facilities, Aramco said in a statement.

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    Aramco kickstarted EPC works on the first phase of the programme in November 2021 by awarding $10bn-worth of subsurface and EPC contracts.

    The Jafurah programme is central to Aramco’s goal of increasing gas production capacity. The target has recently been raised to 80%, with 2021 as the baseline, up from 60%, to meet rising domestic and global demand. The company expects life-cycle investment in Jafurah to exceed $100bn.

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    Indrajit Sen
  • Delivery unlocks gigaproject investment

    29 September 2026

     

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    Completed infrastructure and open assets are making it easier to attract private developers and foreign investors to Saudi Arabia’s gigaprojects, said speakers at MEED’s Shaping Mega Projects conference in Riyadh on 28 September.

    Dale Chadwick, acting CEO of King Salman Park Foundation, said investor appetite had grown as construction advanced. The foundation has received 23 expressions of interest from private developers, and Chadwick said that number was increasing.

    “What the private sector is looking for in terms of investment is surety of what we’re doing,” he said. “As soon as a private developer comes in and sees what we’re doing, they’re blown away. The closer we get to completion, the greater the appetite.”

    He said interest from foreign direct investors was also rising, and that a deal the foundation expects to award soon involves foreign investment.

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    Ben Edwards, group head of cost, commercial and procurement at Red Sea Global, said the operating track record of The Red Sea and Amaala was now its strongest pitch to investors.

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    He added that Red Sea Global’s environmental credentials were a selling point for investors.

    Don’t miss MEED’s SMP 2026.
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    Colin Foreman
  • KBR seeks renewable energy contracts in Libya

    29 September 2026

     

    The US-headquartered technology and engineering company KBR is seeking renewable energy project contracts in Libya.

    Representatives from KBR met with Abdussalam Elansari, chairman of the Renewable Energy Authority of Libya, earlier this month to discuss project opportunities, sources said.

    The meeting with Elansari followed KBR’s opening of a new branch in Libya and its securing of several contract awards in the oil and gas sector.

    In March, KBR announced that it had been 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.

    Under the terms of the contract, KBR will provide contract management, project management and supporting technical services throughout the engineering, procurement and construction (EPC) phases of the project, according to a company statement.

    The EPC work is expected to be executed over a 50-month period.

    KBR is also carrying out work to re-evaluate the front-end engineering and design (feed) for the project to develop Libya’s J6 North Gialo field.

    In January, KBR signed a memorandum of understanding (MoU) with the state-owned Libyan Post, Telecommunications & Information Technology Company.

    Under the MoU, KBR agreed to support efforts to develop and improve Libya’s communications infrastructure and enhance fifth-generation (5G) mobile networks in the country.

    KBR has previously provided engineering services for major national projects in Libya, but was forced to shut down its office in the country several times amid political instability and security issues.

    When the company was known as Brown & Root, it worked on the Great Man-Made River Project in Libya, which is widely recognised as the largest irrigation project in the world.

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