Despite current market oversupply and uncertainty, the future of liquefied natural gas (LNG) remains strong. In fact, months after the outbreak of COVID-19, many buyers remain bullish on LNG demand, and some have even increased their expectations. Meanwhile, some trends—such as expected reliance on the spot and short-term market and growing preference for LNG-based contract pricing—appear to have accelerated.
These findings, among others, are the results of our 2020 LNG Buyers Survey (see sidebar, “About the survey”). Conducted in April, after the initial COVID-19 outbreak and the decline in oil prices, our survey assessed how buyer needs and attitudes have evolved over the past two years as well as how buyers view new developments such as emissions transparency. The survey also assessed whether the pandemic has had a significant impact on how market participants view the industry.
This article provides context on LNG demand and how buyer procurement priorities are evolving and offers guidance on how companies can prioritize business-development efforts. Specifically, our breakdown of six buyer clusters—by region, buyer type, and experience—can help companies navigate market uncertainty and adapt to changing procurement preferences.
In the short term, buyers in all regions have reduced their expectations for LNG demand compared with those preceding the pandemic. Most markets saw reduced short-term industrial and, in some cases, gas-to-power demand due to COVID-19 shutdowns, though buyers remain confident in medium- and long-term demand
The fundamentals for LNG demand growth—such as declining domestic production and growing electricity demand—remain unchanged in many key markets. Meanwhile, low prices enable additional LNG penetration. For example, a majority of buyers in all regions of Asia have increased their demand expectations, with Chinese and South Asian buyers expressing the most confidence.
In the event of sustained low prices over the next three years, 90 percent of buyers anticipate a positive market response, particularly in the power sector as gas displaces other fuels, such as coal Again, Asian buyers are the most bullish. In fact, 60 percent of Chinese buyers expect the demand upside to increase by 11 to 20 percent, while 60 percent of South Asian buyers expect demand to increase by more than 20 percent.