Shell's LNG enthusiasm for Asia is hampered by a conundrum of volume and price: Russell
Shell's long-term outlook is contradictory, which shouldn't be surprising. Shell's annual LNG outlook was released last week. It predicted that the demand for LNG would increase by 60% by 2040. This is largely due to the strong economic growth of Asia, artificial intelligence, and the need to reduce emissions in heavy industry and transportation.
Shell has said that the global LNG demand is expected to rise from 407 millions tons in 2024 to 630-718 million tons by 2040.
Shell's estimates reveal a large potential gap in supply. The London-listed company believes that LNG production will increase by 170 millions tons by 2030.
Addition of the 407 million tons in 2024 to the 170 millions of additional supply gives us a total of 577.5 million by 2030.
Shell's 2040 upper limit is 141 millions tons away, so LNG producers will have to increase their supply in the decade from 2030 to 2040.
The market must decide whether LNG companies will have the capacity to increase their supply by this much, and if so, what price incentives are needed to ensure that the investments take place.
Shell's contradictory outlook is most apparent here.
Shell's forecasts for a strong increase in demand are likely to be met by a price that is competitive with alternatives. This will especially apply to Asia, which is the continent where the highest volume of LNG imports occurs and the key driver behind the optimistic demand forecasts.
If LNG prices remain competitive relative to coal and renewable energy sources, it will be harder for LNG producers to raise the capital required to finance the vast expansion.
Other words, LNG companies will likely be forced to choose between increasing volumes and higher prices in the future, but not both.
Shell's outlook does not make any long-term forecasts of prices, but it is difficult to imagine a scenario in which both LNG volumes as well as LNG prices are high.
It is particularly true in Asia where the three countries with the largest populations and the greatest potential for growth in energy consumption are also the three largest coal producers.
China, India, and Indonesia all produce over 6 billion tons coal per year and are strongly motivated to continue doing so in terms of cost and energy security.
China will also be the largest producer of renewable energies in the world, adding 355 gigawatts to its wind and solar power generation capacity by 2024.
Customs data show that China increased its LNG imports in 2024. The arrivals were 76.65 millions tons, which is the second highest on record.
The LNG sector faces many challenges, as the data from the last few months shows.
Price Impact
According to commodity analysts Kpler, China's LNG exports in February totaled just 4,47 million tons. This is the lowest level for five years.
China's imports of LNG have declined since September. Even December's 7,58 million tons were below the 8,20 million in December 2023.
China is the largest LNG buyer in the world, but the country has also shown a tendency to be sensitive to price increases, and pull back on spot cargoes as the prices rise.
Recent trends of lower imports have come at a high time for spot prices, as Europe's demand is high due to the cold weather. Also, the Russian pipeline supply has further decreased with the ending of shipments via Ukraine at the beginning of the year.
Spot Asian LNG Prices
The price of $8.30 per MMBtu in the week ending February 23, last year is 63% higher.
Kpler estimates that the high price of LNG has dampened Asia's appetite. The continent imported 20,93 million tons of LNG in February, which is the lowest monthly total for the continent since April 2023.
Shell's bullish forecast of 2040 LNG demand will not be realized unless the link between price and demand in Asia is weakened.
The LNG industry will have to invest huge amounts of capital, and be ready to accept lower prices for its new production.
These are the views of a columnist who writes for.
(source: Reuters)
