Shell Sees No Oversupply In LNG Market As New Demand Grows

Royal Dutch Shell said on Monday that rising new LNG demand is offsetting growth in supply, shrugging off concerns of oversupply on the LNG market in which the Anglo-Dutch major became one of the leading players after last year’s acquisition of BG Group.

According to Shell LNG Outlook 2017, demand for LNG last year kept pace with a planned strong increase in new supplies. Demand in Asia and the Middle East was higher than expected and absorbed the rise in supply from Australia.

By 2020, Shell sees the size of global LNG trade to have risen by 50 percent compared to 2014. Global demand for gas is seen growing by 2 percent annually between 2015 and 2030, while at the same time, LNG demand is expected to increase at twice that rate, at 4-5 percent, Shell’s outlook shows.

The company quashed oversupply concerns, saying that higher demand for LNG last year – contrary to many industry and market commentators – offset supply growth, due to shrinking demand lead times with the increased use of floating storage regasification units (FSRUs), and imports in new markets where LNG supplies have been replacing declining domestic gas production.

According to Shell, the LNG trade pattern will be changing in the future to meet the evolving needs of buyers, including shorter-term and lower-volume contracts. Many new LNG buyers are facing uncertainties in their domestic gas markets related to factors such as the global economy, gas exploration, or the liberalization of electricity and gas markets. These uncertainties would lead to new buyers increasingly preferring shorter-term supply contracts of around five years, compared to traditional longer-term deals that usually run for around 20 years, Shell said.

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“When Shell acquired BG Group, we identified the company’s annual LNG outlook as something we wanted to continue,” Maarten Wetselaar, Integrated Gas & New Energies Director at Shell, said in the group’s outlook.

Since Shell spent US$54 billion on buying BG Group in a deal that was finalized in February last year, the supermajor has been increasingly betting big on natural gas and LNG assets and activities.

By Tsvetana Paraskova for Oilprice.com

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