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Flame TV: Peter Stewart on threats to LNG demand growth

Posted by on 28 May 2019
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Peter Stewart is the Chief Energy Analyst at Interfax, a leading information provider for the global gas, LNG, renewables and power industries. Sasha Twining caught up with him at Flame to discuss the demand outlook for LNG in Asia, the perception of natural gas’s climate impact, and the need for improved dialogue between energy companies and the public.

“Gas isn’t yet seen as the solution. But it’s massively better than coal, and it’s definitely part of the solution.”

Q: You’ve been speaking at Flame on LNG. How do you see that market evolving?

Stewart: It’s exciting times, because we’re coming into a period where masses of companies are taking very big, multi-billion dollar decisions on whether to go ahead with new capacity. The thing that I talked about is the demand growth, given all the alternatives that have been developed in terms of new fuels and so on, is the demand growth really going to be there to support those really big investments – something like 200 million tonnes of new capacity potentially coming on by 2025?

Will the demand grow that quickly? Well if it grows at 4% per annum, which is what Shell are hoping it will grow at (that’s their fairly ambitious growth trend), we would get an additional 100 million tonnes of demand. And that leaves a massive potential imbalance between the two. That opens up all sorts of challenges.

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Q: For investors?

Stewart: Yes, well there’s been a lot of discussion about the best financing models, how you can set up your demand networks in a way that the bankers will actually bank your projects. And the other thing that underlies that is it used to be that oil and gas were the really interesting areas for bankers. That is clearly no longer the case.

I mean bankers clearly need stable projects. They will make the investments and back the investments if the projects are robust, if they are going to be viable over the twenty, thirty-year timeframe. But bankers get much higher returns on renewable projects, and some of the new forms of energy that are being discussed, like hydrogen. And it’s a challenge to keep the retention, because there are other markets evolving that seem to offer more opportunities.

Q: Coupled with that, when you look at the length of contract offered within the LNG market, you’re not seeing the twenty year plus contracts now. They’ve come right down.

Stewart: Well, that depends on the buyers. You have a very differentiated set of buyers. Where I think it’s interesting is in these very high growth countries – Vietnam, India, Pakistan, Bangladesh, the Philippines – they all have populations of 100 million plus. Most of their growth will come from the electricity sector, as people go from absolutely basic living conditions, with generally coal or firewood as the only source of energy, towards more middle-class fuels like having a gas hob and all that kind of stuff.

Well, will gas be the fuel that cleans up in that context? I think that’s a really interesting question. If we have a backlash against gas such as we’ve seen in Europe – where it’s not seen as the solution to climate change, it’s seen as one of the villains of the piece – if that image transfers to Asia you potentially lose a huge market.

What the gas industry can do to adjust to that is a real live issue. I mean we’ve already had protestors come into the conference, storming up the stairs, because gas isn’t yet seen as the solution. But it’s massively better than coal, and it’s definitely part of the solution. It’s just that the industry needs to work really hard to work out how to do it better.

Q: Would you say it is more of a public perception issue, or would you say that the industry is simply not doing enough to improve its performance?

Stewart: I think it’s a mix of the two. Every study that you’ve seen says if we’re going to get to 1.5 degrees in terms of the Paris agreement target, we need to decarbonise the energy chain radically. So the public perception is not wrong that the industry is not doing enough to get there, but there have been a lot of really encouraging discussions at this conference.

Also you’re talking about two things: do you want the ideal solution, or do you want a workable solution that will get somewhere to doing it? So gas is really good as a workable solution to getting somewhere closer to meeting the climate goals. It’s not the golden bullet.

The climate debate has tended to be very much led from a radical perspective. Now it’s middle class neighbours of mine in Lewes who are going out and sticking themselves to walls and things like that. It’s changing. And where it goes back to LNG demand is that Asia is the biggest source of LNG demand, and it’s potentially the biggest source of growth. But if that negative image moves across to Asia, it’s potentially really bad for the industry.

Q: Do you think the gas industry has not been quick enough then to see a change in who is protesting, how they are protesting, and what their message is? And can the industry counter that?

Stewart: I think it’s a really interesting question, because for the last thirty years I’ve dealt with two types of people – engineers and traders. Nowadays companies are realising no, we cannot set up projects in communities where they’re not wanted. We need to engage with first nation groups in Canada (for instance).

So I think the human bit of the industry is becoming really important, and the hearts and minds battle is the area where the action is. It’s not going to work if you just soft soak the solution – you’ve got to address the problem, because people are too smart with social media and all these other things, to say “oh, we can trot out a kind of line” and hope that people will believe it. It’s got to be much more proactive than that.

But I’m hopeful. The gas industry has some fantastic people in it, there are some fantastic companies in it. My biggest worry is that climate groups are just anti-corporate. But you can do what you want as an individual - it’s those companies who deliver the solutions. And if everything they do is portrayed in a certain way, that’s very negative. So I think dialogue is a very important consideration.

Q: You mentioned big corporations. Do you think they are just not good enough at doing this, and that it’s the smaller ones that are going to be a bit more fleet of foot and able to engage? Or does it depend on the company?

Stewart: I think the biggest companies are much more aware of those kinds of challenges. The idea that big oil and gas is one thing is just no longer accurate. There are individual companies that are taking very proactive steps – the Shell chairman tells the story of talking to his nine year old daughter I think in the car, and she says “but isn’t your company destroying the planet?”

He’s then rolled out a programme within Shell that is incredibly ambitious. I don’t want to single out one company, but I think those big companies are really taking steps. Not all of them are, and some of them are trying to bury their heads.

Q: Let’s move on to politics. Does there need to be more political action, rather than waiting for the big companies to say initiate the dialogue?

Stewart: It’s a really good question, because actually the really big political agreements – that burn hundreds of thousands of tonnes of jet fuel as everyone flocks into Paris – they need to be done differently I think. The action nowadays is shifting away from national governments towards cities. Smart cities – you have them in the UK, they’re taking really strong steps to reduce their energy use. It’s shifting quite a lot to state level, particularly in the United States, where you’ve got a President who is very negative about climate issues.

Therefore the states are making those decisions, and you’ve got a rise in gas use, and a decline in coal use, even though that’s exactly the opposite of what Trump would like – big coal and all that. I’m getting political here, and that’s probably not my role – but I say what I say.

This transcript has been edited to improve readability.

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