London (energate) - The world is increasingly exposed to potential risks from the US gas market. This is one of the key messages from Shell's annual LNG Outlook. The report provides a review of the past year and an outlook for developments in the coming years. According to Shell analysts, the US will increase its LNG exports from around 100 (130 bcm) to over 150 million tonnes (195 bcm) by 2028. The share of exports will rise from under 15 per cent to around 20 per cent of US shale gas production. The export terminals, again with risks, are 95 per cent concentrated in two states on the Gulf of Mexico (they are not named in the report, but they are Texas and Louisiana).
In the US, Shell expects a significant decline in the use of gas in power generation, stagnant demand in the residential and commercial sectors and a slight increase in industrial demand over the same period. In 2022, long-term offtake contracts have been signed with US suppliers for more than 50 million tonnes of LNG (65 billion cubic metres). This is more than two-thirds of all volumes contracted long-term last year.
Qatar as another important player
Besides the USA, Qatar alone will account for a significant share of additional LNG supply by 2030. The two countries together will provide around 80 per cent of the new supply. Small additional volumes will come from Canada, Mexico, Mozambique and some other countries. This market development will lead to a three-part pricing structure in contracts. US LNG contracts will be dominated by indexation to the US Henry Hub price. Qatar will continue to contract with oil price indexation and the rest of the world will prefer spot price indexation. Shell is convinced that so-called portfolio players, i.e. companies with a global portfolio of procurement but also sales contracts, with longer-term contracts will reduce price volatility and contribute to securing global supply. Shell itself is one of the major portfolio players.
China's LNG demand falls for the first time
Alongside the increasing role of the US, a changing role for China in the global LNG market is one of the key future developments in Shell's view. "China is evolving from an LNG growth market to a flexible market," is the summary. China is thus taking over the role previously held by Europe. Europe is the new premium market for Shell. In 2022, Chinese LNG demand fell for the first time since 2015. China has invested massively in gas storage and pipeline imports over the past three years. The number of long-term LNG contracts concluded by China in 2022 has fallen significantly compared to 2021.
Price volatility remains high for the time being
Although new contracts from portfolio players could reduce price volatility in the medium term, it remains high in the short term. In 2023 and 2024, supply growth is very limited and Europe and China will compete for these volumes. For 2023, Shell analysts expect Chinese LNG demand to grow by less than five to just under ten million tonnes (6.5 to 13 bcm). For Europe, the estimated range is very broad. LNG demand could fall by more than ten million tonnes, but it could also rise by between five and ten million tonnes. Uncertainties about the weather situation and economic development make forecasting difficult.
The LNG Outlook is published
online. It can also be read there how an additional LNG supply of almost 62 billion cubic metres in 2022 has greatly helped to balance supply and demand after Russian volumes have been eliminated. /hl
