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Shell Foresees LNG Shortage

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By MarEx 2018-02-26 18:04:59

The LNG market has continued to defy expectations of many market observers, with demand growing by 29 million tons to 293 million tons in 2017, according to Shell’s annual LNG Outlook. 

Based on current demand projections, Shell sees potential for a supply shortage developing in mid-2020s, unless new LNG production project commitments are made soon.

Japan remained the world’s largest LNG importer in 2017, while China moved into second place as Chinese imports surged past South Korea’s. Total demand for LNG in China reached 38 million tons, a result of continued economic growth and policies to reduce local air pollution through coal-to-gas switching.

“We are still seeing significant demand from traditional importers in Asia and Europe, but we are also seeing LNG provide flexible, reliable and cleaner energy supply for other countries around the world,” said Maarten Wetselaar, Integrated Gas and New Energies Director at Shell. “In Asia alone, demand rose by 17 million tons. That’s nearly as much as Indonesia, the world’s fifth-largest LNG exporter, produced in 2017.”

Global energy demand is expected to grow by 30 percent between 2015 and 2040, even assuming efficiency gains are made. Rising demand is expected to be concentrated in China, India, Africa, the Middle East and Southeast Asia. Between now and 2035, natural gas demand is expected to grow at an average of two percent per year; twice the rate of total global energy demand. Demand for LNG is set to increase at an average of four percent per year.

While gas will continue to be used to generate power, the bulk of future demand growth - led by rapidly growing economies in Asia - will come from sectors that are more difficult to electrify, such as the production of steel and cement.

LNG has played an increasing role in the global energy system over the last few decades. Since 2000, the number of countries importing LNG has quadrupled, and the number of countries supplying it, 19, has almost doubled. LNG trade increased from 100 million tons in 2000 to nearly 300 million tons in 2017. That’s enough gas to generate power for around 575 million homes.

Domestic natural gas production is expected to continue being the dominant source of gas supply, especially in North America and parts of Europe where pipelines are already in place. (The total length of the world's natural gas pipelines would stretch to the moon and back eight times.)

In regions such as Asia and the Middle East, where cross-border pipelines are limited, LNG is expected to play a more significant role. Floating storage and regasification units (FSRUs) contine to enable fast, flexible and economically competitive options for countries looking to import LNG. 

LNG buyers continued to sign shorter and smaller contracts. In 2017, the number of LNG spot cargoes sold reached 1,100 for the first time, equivalent to three cargoes delivered every day. This growth mostly came from new supply from Australia and the U.S.

The mismatch in requirements between buyers and suppliers is growing. Most suppliers still seek long-term LNG sales to secure financing. But LNG buyers increasingly want shorter, smaller and more flexible contracts so they can better compete in their own downstream power and gas markets. This mismatch needs to be resolved, says Shell, to enable LNG project developers to make final investment decisions that are needed to ensure there is enough future supply of the fuel for the world economy.