Feb 01, 2018

Liquefied Natural Gas: A Growing Opportunity in Emerging Markets

By James Woods

Liquefied Natural Gas: A Growing Opportunity in Emerging Markets

The growing importance of Liquefied Natural Gas (LNG) is expected to have lasting implications within emerging markets as both companies and countries adapt to an evolving global energy complex. Robust growth in demand for LNG is attributable to its niche position as a relatively clean-burning and efficient fuel source for power generation and industrial applications, which has recently made it a beneficiary of efforts to improve air quality in major markets like China and India.

Significant additions to global liquefaction capacity are expected to come on-line in the coming years to serve the growing appetite for LNG, (Figure 1) enabling growth in exports for countries including Qatar, Papua New Guinea, the United States and Russia. While long project lead times and variability in contracting activity are likely to keep the industry highly cyclical for the foreseeable future, the secular growth trend in both demand and supply is inexorable.

Example 1: Global LNG Demand

Source: Bernstein Research

Amongst the myriad of important impacts that global LNG growth will have, China’s continued focus on air quality and rapidly growing demand for power will make it the largest contributor to LNG demand growth for the foreseeable future, with a remarkable 50% year over year growth in LNG imports during 2017 helping to drive global demand to 10% year over year. Beijing’s fuel switching efforts already appear to be having the intended effect with recent winter pollution levels the lowest in at least a decade, but Chinese demand for natural gas is not expected to abate. The Government has set a target for natural gas to comprise 15% of its fuel mix by 2030 from 6% today, most of which will be supplied in the form of LNG. A recent 25 year LNG contract – the longest contract signed since 2011 -- between a Chinese petroleum company and a US energy company is an acknowledgement of this paradigm, which will see China increasingly contracting import LNG to fulfill expected future demand.

This information is not intended to provide investment advice. Nothing herein should be construed as a solicitation, recommendation or an offer to buy, sell or hold any securities, market sectors, other investments or to adopt any investment strategy or strategies. You should assess your own investment needs based on your individual financial circumstances and investment objectives. This material is not intended to be relied upon as a forecast or research. The opinions expressed are those of Driehaus Capital Management LLC (“Driehaus”) as of February 2018 and are subject to change at any time due to changes in market or economic conditions. The information has not been updated since February 2018 and may not reflect recent market activity. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by Driehaus to be reliable and are not necessarily all inclusive. Driehaus does not guarantee the accuracy or completeness of this informa­tion. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

About James Woods

James Woods is a senior analyst on the Emerging Markets Team with a focus on the materials, energy and industrials sectors in addition to frontier markets.

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