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Shell: Demand for liquefied natural gas could outpace supply

The Dutch supermajor's annual forecast contrasts with a December report that said the LNG playing field is getting pretty crowded.

By Daniel J. Graeber
Royal Dutch Shell in an annual review sees a looming supply shortage for liquefied natural gas. Photo courtesy of Royal Dutch Shell
Royal Dutch Shell in an annual review sees a looming supply shortage for liquefied natural gas. Photo courtesy of Royal Dutch Shell

Feb. 26 (UPI) -- Without new operations, the global market for liquefied natural gas could slip into a deficit by the middle of the next decade, Royal Dutch Shell said.

The Dutch supermajor said total demand for the super-cooled form of gas has swelled in recent years. Since 2000, the number of supplier nations has doubled, while those importing it quadrupled. Trade tripled since the start of the century.

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Liquefied natural gas offers more maneuverability when compared with piped gas because it can avoid some of the geopolitical and transnational issues associated with building infrastructure across national borders.

Island nations like Japan, meanwhile, have looked to LNG more since the Fukushima nuclear disaster in 2011. China is taking on more LNG as it's economy expands and the country looks to combat air pollution with cleaner fuels.

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"We are still seeing significant demand from traditional importers in Asia and Europe, but we are also seeing LNG provide flexible, reliable and cleaner energy supply for other countries around the world," Maarten Wetselaar, the gas and new energies director at Shell, said in a statement. "In Asia alone, demand rose by 17 million tons. That's nearly as much as Indonesia, the world's fifth-largest LNG exporter, produced in 2017."

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Shell's annual outlook found that demand outstrips supply by the mid-2020s unless companies commit to new projects soon.

The company's annual report contrasts with analysis from Fitch Ratings that's barely three months old. The ratings agency in December said the market for LNG may be oversupplied "for several years" because of new players like the United States entering the game.

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The United States has pushed more shale gas into the open market in the form of LNG, hoping to eat into the Russian market share in Europe. Australia, meanwhile, aims to advance into the energy-hungry Asian market with gas from its giant Wheatstone LNG project. Russia's Novatek set its foot into the global sector when it sent its first shipment of LNG to the market in early December.

Globally, Fitch said securing long-term contracts for any of the major LNG players will be challenging as the field gets more crowded. Russia may therefore be at a slight disadvantage because of Western sanctions.

Nevertheless, Shell said the contractual terms for LNG show a mismatch between buyers and sellers.

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"Most suppliers still seek long-term LNG sales to secure financing," its report read. "But LNG buyers increasingly want shorter, smaller and more flexible contracts so they can better compete in their own downstream power and gas markets."

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