Global trade in liquefied natural gas rose 6 per cent to 380 million tonnes in 2021 on the back of higher demand as economies recovered from the coronavirus-induced slowdown and countries focused on cutting emissions.
China, the world's second-largest economy, and South Korea led the growth in LNG demand in 2021. China surpassed Japan to become the world's largest importer amid a strong rebound from the pandemic, with its imports growing by 12 million tonnes to 79 million tonnes, according to Shell's latest annual LNG Outlook report.
“Last year showed just how crucial gas and LNG are in providing communities around the world with the energy they need as they strive to get back on track following the difficulties caused by the Covid-19 pandemic,” said Wael Sawan, director of integrated gas, renewables and energy solutions at Shell.
“As countries develop lower-carbon energy systems and pursue net-zero emissions goals, focusing on cleaner forms of gas and decarbonisation measures will help LNG to remain a reliable and flexible energy source for decades to come.”
LNG is natural gas that turns into a colourless and non-toxic liquid when cooled to about minus 162°C (minus 260°F). The cooling process shrinks the volume of the gas, making it easy to ship and store.
It can be used for cooking and heating, as a fuel for commercial vehicles, generating electricity, manufacturing products such as fertilisers, paints and medicines.
LNG prices remained volatile last year and surged to record levels in October amid higher demand and supply constraints. Natural gas was trading 1.02 per cent higher at $4.54 per million British thermal units at 10.06am on Wednesday.
Global demand for LNG, which can contribute to better air quality and lower green house gas emissions in the power sector, is projected to grow by up to 5 per cent annually over the next 20 years.
This makes LNG ideal for the transition to a low-carbon energy future, supporting a mix of fuels that are expected to help countries to balance energy demand with their clean energy goals.
A switch to ensure 10 per cent of heavy goods vehicles and 10 per cent of the shipping fleet run on the gas will help to cut emissions and is equal to taking 16.3 million cars off the road.
In 2021, Chinese LNG buyers pushed demand higher after they signed long-term contracts for more than 20 million tonnes, according to the report.
China, the world’s most populous country, is focusing on switching to gas for powering key sectors of the economy in place of high-polluting coal, to help it become carbon neutral by 2060.
“Overall, global LNG demand is expected to cross 700 million tonnes a year by 2040, a 90 per cent increase on 2021 demand,” said the Shell report.
“Asia is expected to consume the majority of this growth as domestic gas production declines, regional economies grow and LNG replaces higher-emission energy sources, helping to tackle concerns over air quality and to help progress towards carbon emissions targets.”
The US, the world’s largest economy, led export growth with an annual increase of 24 million tonnes last year. It is expected to become the world’s largest LNG exporter in 2022, the Shell report said.
Earlier this year, IHS Market also said the US is set to claim the top spot in the export of natural gas in 2022, after ending 2021 as the third-largest exporter behind Australia and Qatar.
“The volatility emphasises the need for a more strategic approach to secure reliable and flexible gas supply in future to avoid exposure to price spikes,” Shell said.
“An LNG supply-demand gap is forecast to emerge in the mid-2020s and focus attention on the need for more investment to increase supply and meet rising LNG demand, especially in Asia.”
Momentum is also building to decarbonise the LNG value chain, with carbon capture, use and storage projects planned on gasfields in Indonesia and Malaysia.