Singapore-based consultancy TRI-ZEN says that although LNG remains the fuel to take shipping into the coming decades, low prices have created a ‘fog’ into the passage. In its latest LNG Perspectives report, the consultant firm urges ship owners to start planning their new environmentally-compliant fleets today.
According to TRI-ZEN, current low oil and gas prices result largely from an oversupply in the market and the situation is not due to change anytime soon. Oil supply will continue to be buoyant in the short-term for as long as OPEC, and particularly Saudi Arabia, considers that defending its market share is more important than controlling supply and thus underpinning weak energy prices.
TRI-ZEN states that change will surely come though and for solid fundamental reasons. Optimism drives investment in oil and gas production. Underinvestment in the current pessimistic climate is building problems for the future. Energy demand continues to grow and oil demand, which each year grows by more than a million barrels a day, will catch up with supply and leave behind those who are unprepared.
On the back of the shale revolution, the US has become the world’s biggest energy producer with annual natural gas production now exceeding 30 tcf. The longer term picture for gasis further compounded by the rapprochement with Iran, which will bring unlock the world’s 2nd largest proven gas reserves, at around 1,000 tcf, or 16% of the global total. The gas market itself continues to evolve, particularly LNG, where traded volumes continue to grow at the expense of long term contracts. The company expects this runaway pessimism in the oil markets to hit the rocks, with demand and supply approaching balance by 2018 resulting in a return to higher oil pricing and a clearer economic incentive for gas.
TRI-ZEN’s 5th annual LNG Perspective update on bunkers includes the following conclusions:
- The conclusions from the 2015 LNG Perspectives paper “Troubled Waters” remain valid, while the global oil and energy oversupply has cast a fog over some of the issues, notably the size of the economic incentive to switch to gas.
- Many oil dependent economies are already showing signs of distress and investment cutbacks. This is not without risk and could lead to volatility and potential social unrest. A bumpy ride lies ahead.
- Global oil demand is projected to come to balance closely with supply by 2018, based on current demand growth projections, which are led to some extent by low energy prices, and based on the continuing depletion of existing reserves and underinvestment in production capability. A demand led energy market will see price escalation. Gas spot markets will wane and those with access to term LNG supply contracts will benefit.
- The accord achieved at the UNFCC COP 21 meeting in Paris in December 2015 is significant and will have far-reaching effects on shipping, not that shipping is necessarily the worst polluting sector, but because it is relatively less well organised and so less able to defend itself than, for example, aviation.
- New and global CO2 and particulates emissions restrictions may eliminate the use of residual and higher viscosity fuels in ships, driving a rapid switch to LNG and some other low-carbon fuels.
- COP 21 has now made to introduction of a 0.5% Sulphur cap on all marine fuels in 2020 more likely than less.
- The use of low sulphur and low carbon fuels will have a significant impact on refiners and today’s refinery economics for refiners who are used to, and will then be denied, the easy disposal of sulphurous residues into the marine pool.
- Despite the warnings, many shippers are still adopting a “wait and see” approach regarding the changes. This is misguided. To meet the deadlines, operators aspiring to environmental compliance and sustainability need to be planning and building their new fleets now.
- Enforcement of new regulations will be a challenge, especially when applied globally. New enforcement authorities will be required, assisted by new and enabling technology.
Source: TRI-ZEN International
