LNG to drive down global gas prices by 40pc

Liquefied natural gas (LNG) is set to bring about a 40% drop in the global natural gas prices over the next decade, according to a recent Morgan Stanley research. 

The steep fall in prices could lead to a reduction in global energy costs by approximately $600 billion, the report from the US-based investment banking company said. 

Experts said Bangladesh will reap the reward if LNG prices in the global market go down. 

Professor Mohammad Tamim, an energy expert and pro-vice-chancellor of BRAC University, told The Business Standard: "We have two floating LNG terminals with a capacity of 1,000mmcf (million cubic feet) per day. Also, a land-based terminal and some LNG-based power plants are to be built, which will result in more dependency on this form of gas. So, if the cost of LNG falls, we will definitely be benefited."

"However, being better at negotiation is one of the main skills in importing cost-effective LNG. This way, we can buy LNG from the spot market to meet seasonal demand, whereas for base demand, we have the long-term contract," he added. 

Energy expert Professor Dr M Shamsul Alam also thinks Bangladesh will benefit if global LNG price falls.
He told The Business Standard: "We are importing LNG under the long-term contract where the rate of per thousand cubic feet is $10. We will not get any benefit if we do not follow the methods other countries are using."

Game-changing impact

Natural gas prices have usually moved at the same time with oil. Since the beginning of 2019, however, European and Asian gas prices have both declined by almost 50%. 

"We expect natural gas prices over the next decade to average nearly half the level of the last decade," said Devin McDermott, an equity analyst and commodities strategist at Morgan Stanley Research. 

Morgan Stanley believes a long-term shift has begun in the global commodity markets and this could lead to a structural change in the drivers of natural gas prices. 

Gas prices could permanently decouple from oil prices and thus result in the collapse of regional price differences, said Morgan Stanley.  

"In 2019, the spreads between gas prices in Europe, Asia and the US have collapsed. The three historically independent markets are now linked, based on transport costs," said Igor Kuzmin, EEMEA Oil & Gas Equity Analyst covering Eastern Europe, the Middle East and Africa. 

The Morgan Stanley research says new LNG capacity is to rise by 100-155 million tonnes per year in the next two to three years, accounting for a 50% growth of the global natural gas market by 2025.  

Transporting gas has always been a challenge as it mostly travels through pipelines. This, apart from the costs involved, has largely restricted new gas supplies. 

But the LNG, which is a liquid version of natural gas, can easily be transported by truck or ship, solving the transportation problem. 

Natural gas transforms into liquid when cooled to -162 degrees Celsius. Its main convenience is that it occupies a lot less space. LNG shrinks the volume of natural gas by about 600 times and thus can be moved over a long distance without too much hassle.       

Morgan Stanley says this ease in movement of LNG will create a "new global commodity market", and will bring about a revolution in low-cost energy.

"LNG will transform the landscape within energy and utilities, and beyond," said McDermott.   

Better air quality in Asia

Although the shift to LNG could put pressure on some sectors, including coal-related companies, the potential sustainability impact of liquid gas is noteworthy, Morgan Stanley says. 

"LNG offers a lower-emissions alternative than most other fossil fuels, emitting 50-60% less carbon dioxide than coal and at prices that are now competitive with other fuel sources in many regions," Mark Savino, equity analyst of Morgan Stanley's Global Sustainability Research team, said. 

"LNG could mean an improvement in local air quality across many parts of Asia," he said. 

"If managed efficiently, it should drive further reductions in European Union's carbon dioxide emissions. This means LNG could become a key piece of the global transition to cleaner energy in the coming years."

LNG demand strongest in Asia

Morgan Stanley research found that the global LNG demand is set to increase over the next five to six years.
The demand was the highest in the Asia Pacific region in 2018, and will be so every year until 2025.   

Bangladesh currently faces a shortage of 1 billion cubic feet (bcf) of gas a day, while the demand is around 3.7 bcf. Considering the overall situation, the government signed a deal with Qatar to import 2.8 million tonnes of LNG annually for the next 15 years. 

A 2018 McKinsey & Company report said the five countries where LNG imports increased the most during the first half of 2018 are all in Asia. All these countries experienced LNG import volumes up at least 12% year-on-year. 
In China, LNG import volumes grew the most out of other delivery mechanisms, such as pipeline and domestic production, at 52% per annum during the first half of 2018. 

In terms of trade flow patterns, Asia was the main destination for LNG flows, where the share of spot cargoes remained mostly below 25%.