Shell LNG Outlook 2018
Shell’s LNG Outlook points us toward future trends that will shape the natural gas industry. Shell’s forecast confirmed many of my ideas, that I held about the LNG market, with some surprising data that I didn’t expect to find.
According to Shell, there is a real conflict of interest between different participants in LNG markets.
Financiers want to stay profitable. To accomplish this, they must ensure that they get back a return on their investments and that that LNG is a better investment than alternative investments. To secure LNG supplies, LNG suppliers want to sell their customers’ long-term contracts, to secure financing.
Then there are customers. LNG buyers want to have in their portfolio smaller contracts, smaller purchases. Their goal is to be more flexible and more competitive in the downstream market. End users avoid long-term contracts, which would undermine their position in their market. This would also undermine their pricing strategy.
It seems quite plausible LNG will play a major role in stabilizing future energy supplies in both developed economies, as well as in developing economies. In reviewing Shell’s LNG Outlook 2018, I was able to identify key trends in the LNG market place.
What I am unsure of is how that is going to play out in a European context, with the construction of Nordstream 2 from the Leningrad district to Mecklenburg-Pommerania in Germany.
East Asia and South Asia will experience strong growth, both in absolute numbers year-on-year and percentages
China and India already have significant market share in LNG world trade. They will continue to grow in absolutes. Both countries claim the majority share of future energy growth, on a global scale. In particular China’s will spearhead demand growth of LNG. LNG will increase dramatically in the coming years, if we look at year-on-year figures. Considering that both countries are major producers of coal, and major consumers of coal as well, it is not unreasonable to assume that they will also continue to play a major role in world LNG trade. Although I would be more hesitant about India’s growth share of LNG trade, due to the economic reforms that could negatively affect India’s rising LNG consumption.
LNG trade increases year-on-year, globally
Globally, LNG trading follows contracted volume of LNG supplies. Almost 100 MTPA (DES) are under construction at the moment. According to Shell, the LNG demand will grow to almost 500 MTPA (DES) by 2030, from currently 300 MTPA (DES).
What I find most interesting is that declining domestic gas production appears not to be the main factor contributing to the growth of LNG. A major contributor is technological change. For example, we see the growth of
In 2017, China accounted for most of the growth of net imports year-on-year in million tonnes DES.
Average contracted volume and average contract length have declined further. In terms of new long-term contract credit rating, Shell finds that A-rated credit ratings have declined, while the percentage of non-investment grade credit ratings has further increased.
Term sales of importers to supplier type
The share of total contract volume listed as supply project has declined further. Under supply project we list contracts that are not passing through an intermediary or trader. The share of total contract volume in portfolios has increased, that share includes intermediaries but not traders. Then there is a very small increase of volume that is driven by traders.
I have added the link to the LNG market assessment of Shell (Shell’s LNG Outlook 2018):