Royal Dutch Shell plc, one of the leading natural gas traders in the world, said Thursday consumption held steady in 2020 despite Covid-19 and is on course to expand as economies recover. However, a dearth in sanctioned projects is forecast to create a supply gap.
According to Shell’s annual global liquefied natural gas (LNG) trade report, consumption increased to 360 million metric tons (mmt) in 2020, versus 358 mmt in 2019.
Gains last year were driven by Asian consumption, even as the pandemic locked down economies and sucked the air out of gross domestic product (GDP).
“Though marginal, the increase in volume reflects the resilience and flexibility of the global LNG market in 2020, a year which saw losses to global GDP of several trillion dollars as economies large and small struggled to contain the Covid-19 outbreak,” researchers noted.
Global gas prices hit a record low early last year, but they ended 2020 at a six-year high as Asian demand recovered and winter buying increased against tightened supply.
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“LNG provided flexible energy which the world needed during the Covid-19 pandemic, demonstrating its resilience and ability to power people’s lives in these unprecedented times,” said Shell’s Maarten Wetselaar, director of Integrated Gas, Renewables and Energy Solutions.
“Around the world, countries and companies, including Shell, are adopting net-zero emissions targets and seeking to create lower-carbon energy systems. As the cleanest-burning fossil fuel, natural gas and LNG have a central role to play in delivering the energy the world needs and helping power progress towards these targets.”
Shell definitely has some skin in the game.
Earlier this month, the Anglo-Dutch supermajor announced its most ambitious makeover in its century-old history. It is throttling back oil production as it inches toward a low-carbon future, but for natural gas, the global opportunities abound. The percentage of total gas in Shell’s portfolio “is expected to rise to around 55% or more” by the end of the decade, CEO Ben van Beurden told investors at the time.
As global gas consumption expands, Shell also may be eyeing a plethora of opportunities. The latest LNG analysis is forecasting a supply-demand gap opening around 2025, with less production coming onstream than previously projected.
Shell estimated that only 3 mmt in new LNG production capacity was announced in 2020, down from an expected 60 mmt, researchers noted.
This year, it is looking stronger. For example, Shell’s frequent partner and No. 1 gas producer Qatar Petroleum this month said it was sanctioning its largest LNG expansion ever at the massive North Field.
U.S. projects also may move forward. For example, Houston-based NextDecade Corp. has said it plans to reach a final investment decision this year on “a minimum of two trains” at the proposed export terminal in South Texas. Wood Mackenzie also has estimated that $11 billion of Australian gas projects could be sanctioned this year.
Last year, gas demand rebounded in Asia, China and India following the outbreak of the pandemic, Shell data showed. China increased its LNG imports in 2020 by an estimated 11% from 2019, or 7 mmt, to 67 mmt.
“China’s announcement of a target to become carbon-neutral by 2060 is expected to continue driving up its LNG demand,” researchers noted. LNG is forecast to play a “key role” in decarbonizing China’s “hard-to-abate sectors, namely buildings, heavy industry, shipping and heavy-duty road transport.”
Meanwhile, India increased LNG imports by 11% year/year in 2020 as it took advantage of lower prices to supplement domestic gas production.
“Two other major Asian LNG-importing countries – Japan and South Korea – also announced net-zero emissions targets in 2020,” researchers noted. Those targets should lead to more gas consumption. For example, to meet its net-zero target, South Korea plans to switch 24 coal-fired power plants to LNG by 2034, researchers said.
Meanwhile, European demand, alongside “flexible U.S. supply, helped to balance the global LNG market in the first half of 2020,” according to Shell.
“However, supply outages in other basins, structural constraints and extreme weather later in the year resulted in higher prices.”
By 2040, global LNG demand is estimated to hit 700 mmt, driven by a 75% surge in Asian growth.
“For instance, China’s heavy-duty transport sector consumed nearly 13 mmt of LNG in 2020, almost doubling from 2018, to serve the fast-growing fleet of well over 500,000 LNG-fueled trucks and buses,” researchers said.
“LNG-fueled shipping is also growing, with the number of vessels expected to more than double, with bunkering vessels set to reach 45 by 2023.”
Shell is looking to find an advantage in that sector. The producer already has chartered four newbuild, low-emission tankers that are scheduled for delivery beginning in mid-2024.
“According to estimates, more than half of future LNG demand will come from countries with net-zero emissions targets,” researchers said. “The LNG industry will need to innovate at every stage of the value chain to lower emissions and play a key role in powering hard-to-abate sectors.”
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