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Shell Sees Henry Hub Dictating Global Natural Gas Markets as North American LNG Exports Grow
The U.S. natural gas market is expected to have a greater impact on the global LNG trade in the future as more projects are built and the world’s supply contracts are increasingly tied to Henry Hub, Shell plc reported Thursday in its annual liquefied natural gas outlook.
Qatar and the United States are expected to drive the bulk of supply additions this decade, with most new offtake agreements likely to be tied to Henry Hub and crude oil prices. While Qatar continues to advance contract negotiations for its massive North Field East and North Field South projects, U.S. project developers led the pack last year, accounting for more than 70% of all global sales and purchase agreements, according to NGI calculations.
Shell’s Steve Hill, executive vice president for energy marketing at the world’s largest LNG trader, said there’s likely to be “far greater interrelationship in the future between the U.S. Henry Hub price and the global LNG market, with a particular impact of anything that happens in that Texas, Louisiana region.”
The majority of existing and planned U.S. LNG production capacity is in Louisiana and Texas, meaning any weather or operational events in the region are likely to have greater influence on the global gas trade and prices.
Overall, global LNG trade hit 397 million tons (Mt) in 2022. Shell is forecasting demand to reach 700 Mt by 2040. While the outlook depends on a variety of factors including economic growth, climate targets and weather, Shell noted the gap is growing with supply forecast to reach roughly 500 Mt by 2040.
Multiple LNG projects also are in the works for Mexico, with developers planning to re-export molecules imported via pipeline from the United States. These projects include Mexico Pacific Limited LLC’s Saguaro liquefaction terminal proposed for Puerto Libertad, Sonora.
Shell in mid-2022 signed a 20-year sales and purchase agreement (SPA) for the offtake of 2.6 million metric tons/year from the Saguaro facility.
More investment in the super-chilled fuel is needed to plug that gulf. Shell stressed too that better technologies are emerging to reduce emissions from natural gas and LNG supply chains that “will help consolidate its role in the energy transition.”
[Mexico Matters: Cross-border energy trade between the U.S. and Mexico reached $42 billion last year. Understand this burgeoning trade flow — the projects, politics and natural gas prices — with NGI’s Mexico Gas Price Index. Know more.]
Europe’s Role Growing
Shell also is forecasting Europe’s need for LNG to displace Russian supplies will intensify competition with Asia for new supply. The continent could dominate LNG trade longer-term, the company said.
“The war in Ukraine has had far reaching impacts on energy security around the world and caused structural shifts in the market that are likely to impact the global LNG industry over the long term,” Hill said. “It has also underscored the need for a more strategic approach – through longer-term contracts – to secure reliable supply to avoid exposure to price spikes.”
In the scramble to replace supplies cut off by Russia after it invaded Ukraine, European countries, including the UK, boosted LNG imports by 60% year/year in 2022 to 121 Mt.
The United States exported slightly more than 80 Mt of LNG in 2022, a year/year increase of 5.9 Mt partly driven by strong demand in Europe. The United States was again the world’s third largest LNG supplier behind Qatar and Australia, Shell said.
The drop in Chinese LNG imports and a decline in buying among price-sensitive customers in Asia helped Europe secure supplies, Shell said. The company expects Chinese LNG imports to increase this year, although imports are not forecast to surpass 2021 levels.
“With reduced Russian pipeline gas, LNG is becoming an increasingly important pillar of European energy security, supported by the rapid development of new regasification terminals in Northwest Europe,” Shell said. “In contrast, China is evolving from being a rapidly growing import market to playing a more flexible role with an increased ability to balance the global LNG market.”
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