Royal Dutch Shell plc in the first three months of the year benefited from its substantial — and growing — natural gas liquefaction business, with global sales climbing 17% year/year to 18.58 million metric tons (mmt) and volumes increasing 9% to 8.9 mmt.

CFO Jessica Uhl shared the results with investors during a webcast on Thursday, highlighting the strong showing from the integrated gas unit, which houses the liquefied natural gas (LNG) business.

With the acquisition of gas-heavy BG Group plc in 2016, “we accelerated our growth of LNG by a decade, and this growth is being delivered quarter after quarter with record liquefaction volumes achieved in 1Q2018,” Uhl said.

“Since 2015, we’ve increased our equity LNG liquefaction by some 50% and our LNG sales by some 75%.”

The profitable growth and resilience in the integrated gas unit is lifting all boats, said the CFO.

Shell issued its second global LNG outlook earlier this year, noting that the export trade last year grew year/year by 29 mmt to 293 mmt, as global demand from new areas grew more strongly than expected. It also reported that 1,100 spot cargoes were delivered in 2017, a 17% increase year/year, and equivalent to three cargoes delivered every day.

“As we made clear in our second LNG outlook published earlier this year, the future of gas continues to look bright,” Uhl said. “Demand for LNG is expected to continue growing in the 2020s at an average growth rate of more than 4% per year because of continued economic growth and policies that support switching from coal to gas to bring down local air pollution and reduce carbon dioxide emissions.”

Because Shell is the leading international oil company in the market, it is positioned to benefit from the growth, she said. “Our strategy and capital allocation profile are designed to maintain our market share.

“Moreover, we see a potential supply gap appearing in the early 2020s. Therefore, we continue to look at opportunities to increase our supply portfolio.” However, regardless of how the market evolves, Shell plans to focus on the bottom line.

“Whether we purchase additional volumes, expand existing liquefaction capacity or develop a new LNG project, competitiveness of the cost of supply, returns and capital discipline will remain key decision criteria.”

Analysts questioned Uhl about the prospects for the Shell-led LNG Canada project, which is to be sited on the west coast of British Columbia. Management has delayed moving forward several times, but of late has indicated a final investment decision could be made this year.

Uhl also hedged in her answer and instead discussed the overall market.

“We remain very bullish on the LNG market. We continue to see very strong demand in a number of markets, particularly in Asia, that supported very strong pricing in the quarter…and overall, the LNG business continues to be a real source of strength for us…

“We believe the market fundamentals will support that going into the 2020s. We also believe that there will likely be a shortage in LNG supply coming into the 2020s, and that new liquefaction capacity will be needed…”

The question for management is how best to source the LNG.

“We look at buying options and we look at building options,” Uhl said. “We’ve got a number of build options in the portfolio.” LNG Canada is one of the “many good options” and it’s relatively “advanced in the funnel” versus all of the others.

However, the dilemma is to ensure the project is the most competitive it can be and to ensure the timing is right in terms of when those volumes would come onstream.

Integrated gas production in the second quarter is expected to be 14,000-160,000 boe/d higher than in 2Q2017. LNG liquefaction volumes are expected to be at a similar level.

However, upstream production during 2Q2017 is expected to be 230,000-260,000 boe/d lower year/year on asset sales, higher maintenance, lower production in the Netherlands and field decline more than offsetting project start-ups.

Using the European method for earnings, which uses a current cost of supplies metric and is similar to U.S. net profits, Shell’s profits in 1Q2018 climbed 42% year/year to $5.3 billion, the strongest earnings since 3Q2014, when oil prices averaged $102/bbl. In the integrated gas business, earnings increased by 107% from 1Q2017 on higher prices, higher volumes and stronger contributions from trading.

However, overall cash flow was down year/year at $9.5 billion, while free cash flow was flat at $5.2 billion.

“Compared to Q12017, higher earnings did not fully translate into higher cash flows this quarter primarily as a result of higher tax payments and increased cash margining on derivatives and integrated gas,” Uhl explained. As management noted in the conference call to discuss 4Q2017 results, the risk management strategy in integrated gas includes the use of some commodity derivatives.

“A component of this strategy is to lock in the economic value of the difference between Henry Hub and Brent, an exposure that is difficult to manage or diversify otherwise,” Uhl said. “These are not speculative positions; they are linked to price exposure of physical deliveries…”