Released February 27, 2023 | SUGAR LAND
en
Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The last 12 months may go down as one of the most momentous periods in energy history, as Russia's invasion upended global energy markets, particularly the liquefied natural gas (LNG) market, Shell plc (NYSE:SHEL) (London, England) said in a report released just before the one-year anniversary of that invasion.
And, in the near future, market forces, rather than military ones, could upend global gas markets, as Shell sees a large and widening gap between LNG demand and LNG supply starting shortly after 2025.
Russia's invasion of Ukraine led to skyrocketing gas prices and a sharp reduction of Russian energy exports to Europe. In response, Europe increased its LNG imports 60% to 121 million tonnes in 2022, said the report, Shell LNG: Outlook 2023, which was released February 16. Natural gas and LNG prices gyrated wildly after the invasion, and a drop-off in LNG exports to China, India and South America, coupled with LNG production growth from the U.S. and Norway, helped bring down prices. High gas prices led to increased fuel switching in India.
Click on the image at right to see year-over-year changes in net LNG exports by various countries.
"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," said Steve Hill, Shell's executive vice president for energy marketing.
With reduced Russian pipeline gas, LNG is becoming an increasingly important pillar of European energy security, supported by the rapid development of two new regasification terminals in northwest Europe, the report noted. By contrast, it said, 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 supply and demand trends.
The jolt in energy markets in 2022 triggered energy security market interventions by governments in Europe and elsewhere that may have long-lasting economic and environmental impacts. For example, the report noted, as Russian gas imports dwindled, Germany increased its use of coal to generate electricity, boosting emissions of carbon dioxide (CO2). High gas prices also led to fuel-switching that boosted the use of coal in Asian nations. Gas prices in Asia briefly spiked to over $80 per million British thermal units (MMBtu) in early 2022, before falling sharply midyear and then shooting upward and then downward in the second half of the year.
Shell's Hill said the global gas market needs "a more strategic approach," including moving away from short-term spot purchases and toward longer-term contracts, to "secure reliable supply to avoid exposure to price spikes."
Total global trade in LNG reached 397 million tonnes in 2022. The Shell report cited industry forecasts that expect LNG demand to reach 650 to more than 700 million tonnes a year by 2040. More investment in liquefaction projects is needed to avoid a supply-demand gap, and a potential price surge, that is expected to emerge by the late 2020s, it added.
The Shell report also looked forward at global projected LNG supply and demand growth. The gas giant found reasons for concern. In 2022, slightly over 15 million tons per annum (MTPA) of liquefaction capacity came online, and a similar amount is forecast for this year, according to the report. In 2024, a slump in new capacity is predicted, following by a surge to nearly 25 MTPA in 2025.
On the demand side, China's LNG imports are expected to grow this year, but there are significant variations in expected demand growth in Europe and the rest of Asia aside from China. The gap is particularly large in Europe, where 2023 demand estimates range from a decline of about 12 MTPA to a gain of about 7 MTPA.
About 80% of new LNG export capacity between 2025 and 2030 is expected to come from the U.S. and Qatar, the report said. U.S. LNG exports accounted for slightly more than 5% of domestic production in 2020, the report noted, but that share is expected to exceed 20% by 2028. And nearly all of expected U.S. LNG export capacity in 2030 will be concentrated in two states--Louisiana and Texas--which are prone to hurricanes and other weather disturbances. Supply problems there could ripple through global LNG markets.
These and other unknowns are expected to lead to continued volatility for supply, demand and price for the next few years. Shell said it sees "market dynamics point to a structural change" in global gas and LNG markets.
In fact, the report points to a significant shortfall between LNG demand and LNG supply that starts in 2030 and widens to 2040.
Like many oil & gas companies, Shell is working to decarbonize its business. The report concludes with a few thoughts on what is being done, and what more needs to be done, to make gas a lower-carbon fuel. This includes: efforts to quantify emissions from natural gas; using artificial intelligence (AI) to reduce emissions; wider deployment of carbon capture, use and sequestration (CCUS) technologies to capture carbon emissions from LNG projects; and use of hydrogen to generate electricity.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).
And, in the near future, market forces, rather than military ones, could upend global gas markets, as Shell sees a large and widening gap between LNG demand and LNG supply starting shortly after 2025.
Russia's invasion of Ukraine led to skyrocketing gas prices and a sharp reduction of Russian energy exports to Europe. In response, Europe increased its LNG imports 60% to 121 million tonnes in 2022, said the report, Shell LNG: Outlook 2023, which was released February 16. Natural gas and LNG prices gyrated wildly after the invasion, and a drop-off in LNG exports to China, India and South America, coupled with LNG production growth from the U.S. and Norway, helped bring down prices. High gas prices led to increased fuel switching in India.
"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," said Steve Hill, Shell's executive vice president for energy marketing.
With reduced Russian pipeline gas, LNG is becoming an increasingly important pillar of European energy security, supported by the rapid development of two new regasification terminals in northwest Europe, the report noted. By contrast, it said, 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 supply and demand trends.
The jolt in energy markets in 2022 triggered energy security market interventions by governments in Europe and elsewhere that may have long-lasting economic and environmental impacts. For example, the report noted, as Russian gas imports dwindled, Germany increased its use of coal to generate electricity, boosting emissions of carbon dioxide (CO2). High gas prices also led to fuel-switching that boosted the use of coal in Asian nations. Gas prices in Asia briefly spiked to over $80 per million British thermal units (MMBtu) in early 2022, before falling sharply midyear and then shooting upward and then downward in the second half of the year.
Shell's Hill said the global gas market needs "a more strategic approach," including moving away from short-term spot purchases and toward longer-term contracts, to "secure reliable supply to avoid exposure to price spikes."
Total global trade in LNG reached 397 million tonnes in 2022. The Shell report cited industry forecasts that expect LNG demand to reach 650 to more than 700 million tonnes a year by 2040. More investment in liquefaction projects is needed to avoid a supply-demand gap, and a potential price surge, that is expected to emerge by the late 2020s, it added.
The Shell report also looked forward at global projected LNG supply and demand growth. The gas giant found reasons for concern. In 2022, slightly over 15 million tons per annum (MTPA) of liquefaction capacity came online, and a similar amount is forecast for this year, according to the report. In 2024, a slump in new capacity is predicted, following by a surge to nearly 25 MTPA in 2025.
On the demand side, China's LNG imports are expected to grow this year, but there are significant variations in expected demand growth in Europe and the rest of Asia aside from China. The gap is particularly large in Europe, where 2023 demand estimates range from a decline of about 12 MTPA to a gain of about 7 MTPA.
About 80% of new LNG export capacity between 2025 and 2030 is expected to come from the U.S. and Qatar, the report said. U.S. LNG exports accounted for slightly more than 5% of domestic production in 2020, the report noted, but that share is expected to exceed 20% by 2028. And nearly all of expected U.S. LNG export capacity in 2030 will be concentrated in two states--Louisiana and Texas--which are prone to hurricanes and other weather disturbances. Supply problems there could ripple through global LNG markets.
These and other unknowns are expected to lead to continued volatility for supply, demand and price for the next few years. Shell said it sees "market dynamics point to a structural change" in global gas and LNG markets.
In fact, the report points to a significant shortfall between LNG demand and LNG supply that starts in 2030 and widens to 2040.
Like many oil & gas companies, Shell is working to decarbonize its business. The report concludes with a few thoughts on what is being done, and what more needs to be done, to make gas a lower-carbon fuel. This includes: efforts to quantify emissions from natural gas; using artificial intelligence (AI) to reduce emissions; wider deployment of carbon capture, use and sequestration (CCUS) technologies to capture carbon emissions from LNG projects; and use of hydrogen to generate electricity.
Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).
