The global LNG (liquefied natural gas) demand has risen sharply over the last decade and is expected to remain robust in the coming years. Energy companies, including the likes of Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX), are investing heavily in developing LNG projects to meet this growing demand. In this article, we discuss the key factors that are driving the global LNG demand.
The U.S. Energy Information Administration (EIA) expects the global natural gas demand grow by 64% from 113 trillion cubic feet in 2010 to 185 trillion cubic feet in 2040, primarily due to its growing use in electricity generation, industrial operations and transportation. This is partly driven by the fact that it has much lower carbon intensity compared to coal, for which it is favored by governments planning to reduce greenhouse gas emissions in several countries. The EIA estimates industrial and utilities sectors to account for 77% of the projected increase in global natural gas consumption. 
A strong growth outlook for global natural gas production also makes it a more competitive fuel among other energy sources in the long run. The EIA expects shale drilling in the U.S. and increased Arctic exploration in Russia to account for almost one-third of the global increase in natural gas supplies. 
With a rather concentrated supply growth and emerging demand from Asia-Pacific countries, the world natural gas trade, especially LNG trade, is poised to grow higher in the coming years. The share of LNG in global natural gas trade has grown steadily over the past few years from around 28% in 2008 to 32% in 2012. This is primarily due to the fact that natural gas imports by the Asia-Pacific countries that rely mostly on LNG (~80%) are growing much faster than the rest of the world. Total global natural gas demand is estimated to have grown by about 2.7% per year since 2000; however, global LNG demand has risen by an estimated 7.6% per year over the same period, almost three times faster. 
Most of the LNG demand in the Asia-Pacific region primarily hinges on two industrialized countries, Japan and South Korea. Although these two countries together account for just 5% of the global natural gas consumption, they import more than 50% of the total LNG traded worldwide. This is because of negligible domestic supply and huge demand form industrial and utilities sectors in these countries.
Since the Fukushima nuclear disaster in early 2011, LNG demand from Japan has grown rapidly, rising more than 25% from 2010 levels. We expect the amount of LNG imported by Japan to remain on the higher side in the short to medium term, as most of the nuclear reactors in the country continue to remain offline. South Korea’s LNG imports are also expected to grow moderately with increasing natural gas demand from utilities and industrial sectors. 
However, most of the LNG demand growth in the Asia-Pacific region is expected to come from China. Government policy aimed at reducing greenhouse gas emissions to deliver cleaner economic growth is the key factor driving higher natural gas demand in the country. Although the fuel represents just around 5% of the country’s total energy consumption currently, the government expects to double it to 10% by 2020. China is not only planning to replace huge amounts of coal used in the generation of electric power with natural gas, but it also plans to replace as much as one-tenth of its oil demand by shifting toward natural gas fueled vehicles.  While the country is trying hard to boost its domestic gas supply through shale gas drilling, consumption is growing at such a rate that China is becoming increasingly reliant on LNG imports. Its state oil giants have also struck long-term deals with the global LNG suppliers to meet their future import needs.  China National Offshore Oil Corp (CNOOC) plans to double its total LNG receiving capacity to 35-40 MTPA by 2015, as it expects LNG imports to play a bigger role in meeting China’s energy needs going forward. 
Apart from China, other markets in the Asia-Pacific region, including Indonesia, Thailand and Singapore, are also expected to drive higher LNG demand over the longer term, as growing energy demand due to industrialization is expected to outpace domestic gas supply from aging fields. Notes:
- Natural gas Outlook 2013, eia.gov [↩] [↩]
- Statistical Review of World Energy 2013, bp.com [↩]
- Japan’s Only Working Nuclear Reactor Goes Offline For Checkup, wsj.com [↩]
- China’s Natural Gas Drive may Cut Oil Demand By A Tenth, reuters.com [↩]
- Global LNG, ey.com [↩]
- China’s CNOOC Plans To Double LNG Import Capacity By 2015, reuters.com [↩]
- SE Asia To Drive LNG Demand Moving Towards 2025, rigzone.com [↩]