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Shell fears LNG shortage as demand soars

Shell fears LNG shortage as demand soars

The world is heading for a shortage of liquefied natural gas that could push up prices, with $US200 billion of investment needed in new plants by 2030 to meet demand, Royal Dutch Shell has forecast.

The energy group believes that a supply shortfall could emerge, with new projects stalling because of difficulties in financing them.

The Anglo-Dutch group is the biggest company listed in London, with a market capitalisation of about £191 billion. Best-known for its oil business, it is also the world’s biggest independent producer of LNG, which is gas cooled to -160C so that it can be shipped in liquid form by tanker.

Shell has dismissed claims by some forecasters of a looming glut in LNG. The global trade in LNG has almost trebled from 100 million tonnes a year in 2000 to nearly 300 million tonnes last year.

Shell expects demand for LNG to roughly double by 2035, as gas becomes an increasingly popular fuel in countries that do not have their own supplies. However, the company thinks that LNG supply, which has grown rapidly in recent years, will fall away again from the mid-2020s, leaving a shortage unless more projects are sanctioned.

Maarten Wetselaar, Shell’s head of integrated gas, said that by 2030 it forecast a shortfall of about 200 million tonnes and that “if it isn’t solved, then you will get higher prices”.

That shortfall is roughly equivalent to the output of about 20 LNG “mega-projects”, each typically costing about $US10 billion for facilities to liquefy gas alone, he said. The problem was not a shortage of gas reserves but that the projects took a long time to get together.

He said that another problem was that buyers increasingly wanted shorter-term, smaller contracts rather than the kind of big, multiyear deal that developers had relied on to lock in revenues and to help to finance the construction of projects.

It was not “in the interests of the LNG industry to go through price spikes”, because this deterred would-be buyers, he said. He added that it was easier for companies such as Shell to finance new LNG projects because it developed them as part of a portfolio and did not rely on project financing.

Shell is gearing up to start production from Prelude, one of the world’s first floating LNG plants, which was given the green light in 2011 to produce gas off the coast of Australia but has been delayed.

Mr Wetselaar said that once Prelude had started, Shell would have the “space to take investment decisions”, although it was working to bring down the costs of potential new LNG developments.

“In the Shell portfolio, the two that are technically ready are Canada and Lake Charles in the US. Other projects in Indonesia and Tanzania and Australia are less mature,” he said.

Globally, the United States, Canada, east Africa, the Middle East and Russia all had potential to develop more low-cost LNG projects, he said, but “if you look at technical readiness, there’s a much shorter list of projects that can get there in coming years”.

The Times

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