If it’s profitable, it scales
Recent discussions on the achievability of ambitious carbon reduction and net-zero goals seem to focus on the massive scale of required investments. With trillions of dollars required on the supply side, plus significant adjustments on the demand-side, financing appears to be the main hurdle.
The focus on absolute dollar amounts is misleading, though. Key to the challenge is whether those investments can be economic. If yes, both supply and demand will scale. LNG markets show how this can happen.
US LNG Exports
The astonishing rise of US LNG exports shows how a significant energy supply growth is possible once profitability is established.
In the space of less than 10 years, the US has become the world’s largest LNG exporter from a base of virtually zero to 11.6Bcf/d average LNG exports in H1 2023. US exports now exceed those of large (and growing) incumbents including Qatar and Australia. And in April 2023, the US set a monthly export record of 12.4Bcf/d. This was enabled by over USD 100bln of private-sector investments into liquefaction infrastructure. And a lot more is on the way.
Great summary article by the EIA, “The United States exported more LNG than any other country in the first half of 2023”.
International LNG Market Growth
Demand growth has exceeded even this large supply increase. The biggest recent LNG demand story is Germany. With Russian pipeline gas imports disappearing in 2022, the cost of gas supply interruptions provided a massive economic incentive for LNG imports. Germany is adding 3.7Bcf/d regasification capacity in 2023, up from zero in 2022. This is about 1.8 times the liquefaction capacity of LNG Canada Phase 1!
And the Philippines and Vietnam also joined the club of LNG importers (EIA, Three more countries began importing liquefied natural gas this year, and more will follow).
Overall, global LNG markets grew 5% in 2022 vs 2021, and whilst forecasts differ depending on who prepares them, LNG market growth appears robust (EIA, Global liquefied natural gas trade volumes set a new record in 2022).
Thus even our focus should be on cost curves, relative profitability, Levelized Cost of Energy, etc - and less on absolute investment dollars required.
If it’s profitable, it scales!
Next week - will Canadian LNG have a significant market impact?