- Rising demand for natural gas in the power sector supports our positive outlook on LNG-to-power projects. Growth will be led by emerging markets, which are set for 50% increase in natural gas demand over our 10-year forecast period.
- The project pipeline is heavily skewed towards Asia-Pacific, Latin America and the Caribbean and, to a lesser extent, Sub-Saharan Africa. The drivers behind demand vary by market, but generally include low or declining domestic gas production, a strong rise in overall energy demand, a need to diversify the power mix and deeper decarbonisation efforts.
- While the growth prospects for LNG-to-power are generally strong, a number of barriers to uptake remain. The industry is still in its infancy and the risks associated with LNG-to-power projects will take time to overcome in full.
- We expect floating LNG-to-power projects will grow their share of the market over time, given their greater flexibility and capital cost advantages, with an increasing role for floating power plants, alongside floating regasification facilities.
Rising demand for natural gas in the power sector supports our positive outlook on LNG-to-power projects. Globally, the share of natural gas in total generation is expected to increase only marginally, from 23.8% in 2020 to 24.0% in 2030, as an expanding role for gas among emerging markets (rising from 19.2% to 20.7%) is offset by a declining role among developed markets (falling from 31.4% to 30.7%). Nevertheless, the power sector’s overall demand for gas will grow robustly, reflecting broader energy demand growth, increasing by 1,738TWh (28.8%) globally over the 10-year forecast period: 248TWh (8.2%) among DMs and 1,490TWh (49.4%) among EMs.
Every region is set to see gas generation rise in volume terms, although growth rates vary markedly. Asia-Pacific is the clear outperformer, with gas generation forecast to increase by 923TWh, or 61.9%, over 2021-2030. Growth rates are also robust in Latin America (41.6%), the Middle East and North Africa (36.2%) and Sub-Saharan Africa (33.5%), although growth is occurring from a very low base in the latter region. The drivers vary region and market, but common threads include the improving efficiency of gas-fired power plants, ongoing decarbonisation efforts and attempts to diversify the power supply away from alternatives such as hydropower, coal and oil. Although the LNG-to-power markets remains nascent, it shows a lot of potential worldwide, in particular in markets lacking adequate domestic gas supplies and where the options for pipeline gas are limited.
The project pipeline is heavily skewed towards emerging markets in Asia-Pacific, Latin America and the Caribbean and, to a lesser extent, Sub-Saharan Africa. In APAC, some of the strongest growth prospects lie in South East Asia, in markets including Vietnam, the Philippines, Indonesia and Myanmar. In general, natural gas already plays a significant role in the power sector, but domestic gas supply constraints are increasing the reliance on imports, with LNG generally offering the most feasible import alternative. LNG-to-power projects are gaining particular traction in the region, as they help to meet fast-rising energy demand, while curbing emissions growth.
In Latin America, natural gas is being targeted to help ease reliance on hydropower, which currently accounts for around half of the region’s power mix and leaves countries highly vulnerable to changes in precipitation and periods of drought. LNG import growth will be curbed by domestic production gains and competition with pipeline gas in some markets, but can play an important role in countries where these prove inadequate to meet demand. Over the longer term, natural gas faces rising competition from the rapid penetration by renewables in the power mix, rendering the demand outlook somewhat uncertain. In light of this, floating concepts are often preferred, given their lower capital costs and shorter project life cycles.
In Sub-Saharan Africa and the Caribbean, the demand for LNG is being driven by the lack of domestic gas resources and a need to diversify power supplies and ease reliance on higher cost liquid fuels. LNG-to-power projects have particular utility in these markets, due to the generally small size of the domestic gas demand pools, limited infrastructure and a lack of anchor offtakers. Large infrastructure developments generally rely on project finance, which in turn requires that the bulk of the gas to be supplied by the project is sold in advance under long-term purchase agreements. In the absence of an existing gas economy, LNG-to-power can provide a crucial avenue by which natural gas can enter into new markets in these regions.