Liquid natural gas to face supply shortage by mid-2020s - Shell

The global liquefied natural gas market has continued to defy expectations, according to Shell’s annual LNG outlook, which showed demand growing 11% to 293m tonnes last year.

The strong growth in demand was consistent with Shell's maiden outlook report a year ago. Current projections point to a supply shortage developing by the halfway point of the next decade, unless new LNG production projects were committed to in the near future, the Anglo-Dutch oil and gas giant said.

Japan remained the largest importer of LNG in 2017, with China moving into second place after imports to the Asian superpower surged past those in South Korea with total demand topping 38m tonnes as result of continued economic growth and policies to reduce local air pollution through coal-to-gas switching.

US natural gas prices have been volatile since the start of the year as severe spell of cold weather increased demand and limited some production, meaning a fall in inventories significantly below their five-year average lifted prices to their highest since 2016. February has seen prices drop almost 30% with economists noting that the previous relationship between stocks and prices seemed to have broken down somewhat.

"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," said Maarten Wetselaar, director of integrated gas and new energies at Shell.

"In Asia alone, demand rose by 17 million tonnes. That’s nearly as much as Indonesia, the world's fifth-largest LNG exporter, produced in 2017."

Shell's report said that since 2000, the number of countries importing LNG had quadrupled, the number of countries supplying it had nearly doubled, and that in 2017, the number of spot cargoes delivered hit 1,100 for the first time, with the majority of the growth coming from new supplies out of Australia and the USA.

However, Shell pointed out that the mismatch in requirements between buyers and suppliers was widening, with most suppliers still seeking long-term LNG sales to secure financing in a world where buyers increasingly opted for shorter, smaller and more flexible contracts in order to better compete in their own downstream power and gas markets.

Shell said, "This mismatch needs to be resolved to enable LNG project developers to make final investment decisions that are needed to ensure there is enough future supply of this cleaner-burning fuel for the world economy."

Prices of US natural gas in 2018 is expected to rise this year for three key reasons, economists at Capital Economics last week: an acceleration in the rate of closure of coal-fired power plants, exports of LNG from the US will continue to surge, with export capacity set to reach about 4.2 bcf/d by end-2018 and 9.6 bcf/d by end-2019, up from around 2 bcf/d at the start of 2017; and third that increasing US economic growth should boost demand for electricity, chemicals and fuels, all of which will raise demand for natural gas.