Page 5 - GLNG Week 09

GLNG COMMENTARY GLNG
by 21%, as the region sought more overseas gas in an attempt to offset declining domestic production.
However, 2019 also saw LNG become a vic- tim of its own success with the amount of avail- able supply bringing down spot prices.
The increasing flexibility of LNG trade, whilst being a welcome development for buyers, has become a headache for sellers – especially when they are seeking long-term offtake agreements to underpin new liquefaction projects. Now, developers are having to adapt to this new mar- ket environment and find other ways of ensur- ing liquefaction capacity is built. However, Shell does not appear to be concerned that this over- supply will be a feature of the global market for the long term.
Looking ahead
Shell expects that supply growth will slow in the near term as LNG producers struggle with mar- ket conditions. However, the super-major also forecasts that after the current wave of construc- tion comes to an end around 2021, new supply will drop off until the mid-2020s. Equilibrium is expected to be restored during this period, Shell said.
In the longer term, though, the company believes that global LNG demand will dou- ble to 700mn tonnes by 2040. It attributes this in large part to natural gas playing an ever greater role as the world shifts to lower-car- bon energy.
“While we see weak market conditions today due to record new supply coming in, two
successive mild winters and the coronavirus sit- uation, we expect equilibrium to return, driven by a combination of continued demand growth and reduction in new supply coming on stream until the mid-2020s,” Wetselaar said.
Shell anticipates that despite the dominance of European demand last year, Asia will still be the dominant region for years to come. South and Southeast Asia in particular are expected to come to the fore, with Shell predicting that this region will account for more than half of the increased demand.
In line with the trend towards decarbonisa- tion, Shell also expects that demand for LNG as a marine fuel will grow, potentially rising above 30mn tonnes per year (tpy) by 2040 as more LNG-fuelled ships are ordered and the required infrastructure is developed.
These expectations are in stark contrast to the state of today’s LNG market. Indeed, there are expectations that some new liquefaction pro- jects could be shelved – potentially speeding up the projected restoration of equilibrium in the medium term.
However the full impact of the corona- virus outbreak still remains unknown, and while the situation appears to be improving in China – where energy demand was badly affected – other countries are still bracing for more actions that may need to be taken in order to contain the outbreak. Once again, energy demand could take a hit as transport is restricted. In other words, in the immediate term, things could easily get worse for the LNG market before they get better.™
The increasing flexibility of LNG trade, whilst being a welcome development for buyers, has become a headache for sellers.
Week 09 05•March•2020 w w w . N E W S B A S E . c o m
P5