Why LNG exporters are so confident

Hey Reader, welcome to The Energy's weekly data newsletter. This week we dive deeper into the latest data on global energy investment from the International Energy Agency.

Should LNG producers be this bullish?

Confidence in the future of LNG exports from Australia is palpable — in the industry that produces the commodity at least.

The Abu Dhabi National Oil Company’s $30 billion consortium bid for Santos, and Woodside Energy’s pursuit of a 40 year extension of its North West Shelf LNG processing plant licence, a prelude to opening up a new gas field in the Browse Basin to feed it, are the most recent tangible illustrations of this.

The conflict with the Albanese government’s pursuit of “net zero” carbon emissions by 2050 is just as tangible.

Never mind the environmental challenges of managing the impact of pollution from the North West Shelf on ancient Burrup Peninsula rock paintings, or the effects of drilling in the Browse Basin on the nearby pristine Scott Reef.

Demand for LNG in Australia’s Asia Pacific neighbourhood is expected to keep growing, and the legacy energy supplier — with loyal customers in the north of the region and new ones closer by — must once more unto the breach advance.

The industry believes its own story

As The Grattan Institute’s Tony Wood says, “the industry believes its own story very strongly” — in apparent denial of the fact that at some point we will have to “start stopping using gas”.

Woodside’s 2024 results presentation underlined the point, confidently forecasting growth in global LNG demand of 50 per cent over the next decade and a “supply gap” of about 90 million tonnes per annum (MTPA) by 2034. Southeast Asia, India and (less so) China keep growing to 2050 under this scenario.

Santos’ presentation painted a similarly rosy picture of potential demand for exports from its existing Queensland and Darwin LNG operations (its Barossa field north of Darwin should produce its first gas in a few months).

The case for gas exports — based more on intuition than evidence — is that they can help our Asian neighbours get off the coal power on which many depend heavily more quickly than if they attempted to do so with renewables and storage.

*Woodside's 2024 results presentation forecast strong growth in LNG demand over the next decade.*

Majors are bullish too

Woodside and Santos might say they are in good company – Shell’s LNG Outlook 2025 looks just as optimistic.

It foresees global LNG demand increasing by about 50 per cent between now and 2035, from just over 400 MTPA to just over 600 MTPA, and pushing up to about 675 MTPA by 2040.

Again, the growth is driven by China, India and the rest of Asia, with demand from the developed economies of Europe, Japan and South Korea contracting slowly after 2030.

Shell doesn’t include a “net zero” scenario in its outlook because, it says, its 2050 target is “outside our planning period” and “if society is not net zero in 2050, as of today, there would be significant risk that Shell may not meet this target”.

Like Woodside and Santos’ LNG outlooks, Shell’s is dismissed by activist groups as over-optimistic and in conflict with net zero targets.

*Shell's LNG Outlook 2025 is just as optimistic as Woodside and Santos'*

Net zero scenarios’ sharp reversal

BP goes where Shell dares not and includes a net zero scenario in the LNG section of its most recent BP Energy Outlook 2024.

This diverges sharply south from BP’s “Current Trajectory” (or business as usual) scenario. This shows LNG traded volumes jumping more than two-fifths from just under 600 billion cubic metres (430 MT) to just over 850 Bcm by 2035, and around 950 Bcm by 2040.

(Yes, we have changed units of measurement with BP to Bcm, which the International Energy Agency also uses so we will stick with it: 1 MT is about 1.38 Bcm.)

Under BP’s net zero assumption, LNG traded volumes rise to just over 700 Bcm by 2030, and then fall to about 700 Bcm by 2035, just under 600 Bcm by 2040, and around 300 Bcm by 2050.

That is much less rosy than the Shell, Woodside or Santos outlooks, even allowing for the Aussie producers’ focus on Asian markets.

*BP's Energy Outlook 2024 diverges sharply south from business as usual*

Whatever it takes

But it’s far from the least rosy projection in the marketplace.

The International Energy Agency’s most recent World Energy Outlook 2024 offers three scenarios: “STEPS” (or current policies), “Announced Pledges” (i.e. announced but not implemented) and “Net Zero by 2050” (or whatever it takes).

BP’s Net Zero trajectory for LNG traded volumes more closely resembles the IEA’s Announced Pledges scenario.

The IEA’s Net Zero scenario sees LNG volumes topping out at around 550 Bcm before 2030 and dropping like a stone after 2030, leaving the market liberally over-supplied, with no discernible respite in Asia.

That’s a stark contrast to Woodside and Santos’ predictions for Asian demand to grow all the way to 2050. The IEA can seem Pollyanna-ish on climate action amid the general backsliding, but at least they’re not glossing over it.