Oil and Gas

Liquefied Natural Gas Is the Key to Decarbonizing Energy

If you’ve been a Profit Trends reader for a while, you know that I write a lot about renewable energy and the electrification of the transportation sector.

The world is rapidly decarbonizing.

And renewable energy and electric vehicles are a big part of that movement. But not every sector is easily electrified.

That’s good news for natural gas – especially liquefied natural gas (LNG) – which will play a key role in decarbonizing our energy flow.

LNG Hot Spots

In 2020, global LNG demand was 360 million metric tons. That’s expected to nearly double to 700 million metric tons by 2040.

About 75% of that demand growth will come from Asia. One of the quickest ways to get a jump on decarbonizing is to switch from coal and/or oil to natural gas. So it’s no surprise that more than half of future LNG demand will come from countries that have net-zero emissions targets.

Three of the worst carbon dioxide emitters are China, Japan and South Korea. China announced it will be carbon neutral by 2060. South Korea and Japan committed to having net-zero emissions by 2050.

China is increasingly using LNG-fueled trucks and buses over dirty diesel-powered ones. In 2016, it had a little more than 200,000 of them.

Last year, that number increased to nearly 600,000. Those trucks and buses used 13 metric tons of LNG in 2020. And to support vehicle refueling, China has more than 3,000 LNG refueling stations.

Europe is another LNG transportation hot spot. It has more than 300 refueling stations in 21 countries. European road transport is expected to use 7.9 metric tons of LNG annually by 2030.

LNG is making big inroads into the marine sector as well. A decade ago, there were fewer than 25 ships powered by LNG. But today, there are about 200. And that number is expected to double in just two years.

Most LNG-powered ships are refueled at sea by LNG bunker vessels. And the number of those is increasing as well. Currently, there are more than 25 in operation. That number could jump to 45 by 2023.

All of this additional demand for LNG is expected to create a supply-demand gap by 2025. And there’s a simple reason that’s going to happen.

Natural Gas Production Growth

Because of the COVID-19 pandemic, 2020 saw just 3 million metric tons of new LNG supply come online. The original forecast was for 60 metric tons of new supply during the year.

But stay-at-home orders and lockdowns kept workers away from job sites. And this delayed the construction of new LNG liquefaction projects.

In spite of the pandemic, the U.S. remains the world’s third-largest LNG exporter. And analysts predict that it will become the world’s largest by 2024.

Liquefied Natural Gas Exports

This is due in large part to America’s record-breaking shale gas production. And this is amazing, given that the U.S. had a natural gas shortage less than 20 years ago.

In 2003, the U.S. was still importing 18% of its natural gas. But today, U.S. natural gas imports have all but disappeared.

Between now and 2024, U.S. natural gas production growth will be 35% of the global total.

And by 2022, U.S. LNG exports should reach 70 metric tons per year.

With significantly lower greenhouse gas emissions than fossil fuels, natural gas is the big transition fuel that will help the world decarbonize.

And investors who take advantage of the opportunity behind LNG have the chance to see big gains. It’s another aspect of the disruption that is occurring in the energy sector.

Good investing,

Dave