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GLNG COMMENTARY GLNG

Shell sees LNG rebounding

to pre-COVID-19 levels

Royal Dutch Shell has expressed confidence over the potential of the
LNG trade to recover to the levels seen before the COVID-19 pandemic

PERFORMANCE ROYAL Dutch Shell remains bullish on the What next?
longer-term potential of LNG, despite the Van Beurden’s comments come as other indus-
WHAT: industry being hit hard by the coronavirus try projections that are emerging. This week, the
Shell expects the global (COVID-19) pandemic. In February, Shell – the International Energy Agency (IEA) said in its
LNG trade to recover to world’s largest LNG trader – published its latest annual gas report that it expected the global gas
pre-COVID-19 levels. annual outlook for the super-chilled fuel. At market to experience its “largest demand shock
the time, the super-major said that it expected on record” in 2020, with consumption falling 4%
WHY: LNG demand to double to 700mn tonnes by year on year.
The super-major believes 2040. Now Shell’s CEO, Ben van Beurden, has However, the agency revised its demand
LNG is a fundamentally expressed confidence in LNG’s ability to bounce decline forecast slightly, having previously fore-
strong industry. back from the hit it has taken so far this year. cast it to be 5%. It said that demand would begin
“We still very much believe that with the to recover from 2021, but warned that this pro-
WHAT NEXT: current supply-demand outlook, this is a fun- cess would not be quick.
Nonetheless, Shell damentally strong sector that will grow at a rate Despite this muted outlook for gas, however,
expects there to be short- that is close to 4% per year,” van Beurden told the IEA anticipates the LNG trade growing by
term pain. Bloomberg. 21% between now and 2025, reaching 585bn
cubic metres per year. Growth is projected to
Caution be led primarily by China, which is forecast to
However, the longer-term bullishness is tem- account for 22% of total LNG demand by 2025.
pered by shorter-term caution. In April, Shell The IEA anticipates that China will account for
warned that its liquefaction volumes would fall almost 40% of growth in total imports over its
in the second quarter of 2020. Shell is also among forecast period.
the companies delaying final investment deci- Speaking on a webinar, the IEA’s director of
sions (FIDs) on LNG projects. The super-major energy markets and security, Keisuke Sadamori,
announced in April that it was pushing back said that a decline in new investments in lique-
an FID on the Crux project offshore Australia, faction capacity could lead to a tighter market in
Shell is also which was previously expected this year. Crux the longer term. And while some industry play-
will be developed to backfill the Prelude floating ers may welcome this as a sign of higher prices
among the LNG (FLNG) project. for their fuel in the future, Sadamori warned
Shell also appears to be using this time to that a lack of new investment in liquefaction
companies streamline its portfolio, and has exited the capacity could “cast a long shadow on the gas

delaying final planned Lake Charles LNG project in Louisiana, value chain, which can put at risk the future
citing the market downturn. And earlier this market balance”.
investment month, it was reported to be considering selling Also this week, consultancy Timera Energy
a stake worth $2bn or more in common facilities said in a note that global LNG demand had
decisions (FIDs) at the Queensland Curtis LNG (QCLNG) plant actually exceeded expectations so far this year.

on LNG projects. in Australia, according to a sale flyer reviewed The consultancy added that European gas prices
could “surprise to the upside” in the next 2-3
by Reuters. (See GLNG Week 22)
The cautious approach is not expected to last years as the glut eases. Timera pointed to the
forever, and Shell’s chief financial officer, Jessica recovery having already started as lockdown
Uhl, has said that production cuts across Shell’s measures are lifted, suggesting that demand
oil and gas portfolio would not be permanent. could return to normal levels in the next few
This appears to apply specifically to LNG as well. months.
“We will obviously flex our investment pro- However, the threat of a new wave of lock-
gramme to be aligned with where we believe the downs continues to hang over the world,
sector will go, but the profitability of the busi- though it is likely that enough lessons have been
ness and the outlook of this business is going learned from earlier during the pandemic for
to be as good as what you saw before the pan- countries to seek to avoid this. And given this
demic,” van Beurden was quoted by Bloomberg much uncertainty over what will happen next,
as saying. it is little wonder that expectations are mixed.™

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