Shell sees supply-side squeeze for liquified natural gas

Feb. 16 (UPI) -- The market for liquefied natural gas is expected to tighten over the coming years as the European pursuit of non-Russian supplies competes with the demand pull from other economies, Shell said Thursday.

Shell in its regular outlook report for liquefied natural gas said the market will tighten as demand surges on the back of limited supplies. Europe's increasing demand will compete with Asia over limited supplies over the next few years.

"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," Steve Hill, Shell's executive vice president for energy marketing, said.

Ukraine hosts a dense network of Soviet-era pipelines extending into Europe. Past rows over contracts and payments left Europe in the cold because of the shortage of natural gas. Sanctions imposed last year on Russia in response to its invasion of Ukraine prompted European economies to shun supplies, fearing the Kremlin was exploiting its oil and gas reserves for geopolitical gain.

Last year, the European and British economies took in 121 million metric tons of LNG, a 60% increase over 2021 levels, which allowed the region to tolerate the shortage of piped gas from Russia, Shell said.

Meanwhile, Chinese demand slumped because of the tight social restrictions imposed to control the COVID-19 pandemic, but that changed this year and the second-largest economy in the world behind the United States is expected to expand by around 5% this year, rivaling peer economies stifled by runaway inflation.

Much of the heavy lifting came from the likes of Norway and the United States, the latter of which is quickly establishing itself as a leader in LNG exports. The U.S. Energy Information Administration, part of the Energy Department, said it expects LNG exports to increase by 11% from year-ago levels.

Shell said total global trade in LNG reached 397 million metric tons last year and could reach as high as 700 million metric tons by 2040.

"More investment in liquefaction projects is required to avoid a supply-demand gap that is expected to emerge by the late 2020s," Shell's report read.

Shell itself has a large LNG portfolio. Beginning with projects in Algeria in the 1960s, Shell is now a global leader with its floating Prelude LNG facility offshore Australia among the largest facilities of its kind in the world.

Shell reported adjusted net earnings for the fourth quarter of $9.8 billion. Most of the growth came from its natural gas sector, which accounted for roughly 60% of total revenue during the period.