Is LNG the new oil?

The stronger investment outlook for gas goes beyond upticks in demand: there is also transformation at work. Gas will increasingly be traded across the world’s oceans in the form of LNG, driving a surge in capex, which DNV, the independent expert in risk management and assurance, expects to peak at around USD 250bn for both 2024 and 2025. This comes as new sources of gas supply, particularly in North America, establish the infrastructure needed to sell gas to new centers of demand in China, India, and South East Asia, where investments are being made in terminals to receive the gas.

The result? LNG may become – or already be – the fuel driving the most capital-intensive projects in the industry, taking the place of oil.

However, the pullback on investment in new upstream oil and gas projects has many concerned about future supply shortfalls. “The industry needs to be careful regarding upstream oil and gas,” says Ahmed Heikal of Qalaa Holdings. “The lack of long-term investments could see shortages that can cause a lot of spikes in oil prices.” As a result, Heikal does not rule out the possibility of a return, for a brief volatile period, to USD 100 pb oil: “I don’t think that is farfetched,” he says. Many would agree with him. Energy research company Rystad, for instance, has estimated that unless the transition to new energy sources is dramatically accelerated, the upstream industry will need to double its conventional exploration efforts to meet oil demand through to 2050.

Gas could also be in short supply unless investment picks up soon, but much depends on how the world bounces back from COVID-19. “Everyone is looking for the timing, but it’s so unpredictable,” says Jane Liao, vice president at CPC Corporation, Taiwan’s largest energy group. “The oil price depends on the success of the vaccines and when the global economy can recover. Meanwhile, if too few projects come on stream over the next year or two, then when things pick up we might face a long-term supply issue.” Weighing up these factors will make oil and gas investment decisions challenging in 2021, especially as investments beyond those fuels are taking up an increasing share of available capex.

At the same time, whatever the nature of the recovery, it seems clear that too much has changed for the global economy simply return to the status quo of late 2019.