Novatek sees LNG supply shortfall by 2030

A lack of new financial investment decisions (FIDs) and growing worldwide demand could lead to an LNG supply shortfall by the end of this decade, Russian firm Novatek said.

LNG supply could fall short by around 150mn t/yr by the end of this decade without additional FIDs, an issue that "needs to be addressed", Novatek chief financial officer Mark Gyetvay said at the virtual European Gas Conference.

Novatek expects worldwide LNG demand to continue to grow even as countries decarbonise their energy systems. The idea that gas is "falling out of the equation is grossly overstated", Gyetvay said.

Gyetvay expects increased coal-to-gas switching in the power sector, hydrogen production and gas being used in tandem with intermittent renewables for power generation to boost gas demand in the coming years.

LNG supply's cost competitiveness will ensure supply growth even in a lower-demand scenario, as "the lowest-cost producers will prevail", Gyetvay said.

And the flexibility provided by LNG will continue to be useful over seasonal demand fluctuations, as demonstrated by the recent spike in northeast Asian demand, Gyetvay said.

The firm expects gas demand in Asia to grow "very strongly" despite China's net zero emissions target for 2060, and expects around 80-85pc of its LNG output will be delivered to the region in the future.

But new FIDs will need to be made to meet the rising demand, Novatek said.

While spot northeast Asian LNG prices spiked earlier this month, firms are unlikely to make FIDs based on "inflated prices", Gyvetvay said.

Novatek still expects to make a FID on the 5mn t/yr Obsky LNG terminal this year, having postponed it from last year.

Gyetvay foresees a move away from FIDs being secured by traditional long-term supply contracts towards a model involving equity sponsors, given the increasing number of firms seeking to secure volumes on a short-term basis.

The firm expects supply sold under long-term contracts to fall to almost 50pc by 2025, down from 65-75pc five years ago.

By Elaine Atwood