Shell sees the global LNG market as being well supplied to at least 2025, senior company officials said Thursday, with the market returning to balance only as new LNG projects currently under development complete.

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Register Now Shell on Thursday launched its closely-watched LNG Outlook -- the Anglo-Dutch major's fourth since it completed the purchase of the UK's BG Group in 2016 -- saying the global LNG market was currently suffering under "weak conditions."
Maarten Wetselaar, Shell's Integrated Gas and New Energies director, said this was due to "record new supply coming in, two successive mild winters and the coronavirus situation."

The global LNG market is seen by many as being currently in a state of oversupply, with supply growth from new projects from Australia and the US more than offsetting demand growth, which has been hit by mild winter temperatures and -- more recently -- the coronavirus outbreak in China.

The JKM Asian spot LNG price has fallen to its lowest ever level since S&P Global Platts began assessments in 2009, falling as low as $2.71/MMBtu last week.

Steve Hill, EVP, Shell Energy, told reporters on a conference call Thursday that the global LNG market would be well supplied into the middle of the decade and "potentially a bit after."

The industry has sanctioned enough projects to meet demand to 2025, with the planned expansion of Qatar's LNG export capacity to 126 million mt/year from the current 77 million mt/year also expected to add to the burgeoning supply.

Industry records
Shell said global LNG demand grew by 12.5% to 359 million mt in 2019, "a significant increase that bolsters LNG's growing role in the transition to a lower-carbon energy system."

It said an industry record of 40 million mt of additional supply became available and was consumed by the market.

In 2020, Shell expects a further 20 million mt of supply to come online, followed by 10 million mt in 2021.

Hill said 2020 would see a "different" set of circumstances compared with the huge increase in supply last year. "The rate of growth is halving," he said, with almost all the supply growth coming from the US.

Hill said Shell expects Asia to absorb most of supply growth in 2020, with Europe acting as the global market balancer, taking the remaining incremental volumes.

Given the coronavirus outbreak, however, there is potential for "slightly lower" demand in Asia, Hill said, offset by higher imports into Europe "or less supply due to shut-ins or turndowns in some countries."

Hill said 2020 would also be a "transition" year for the market with a "material reduction" in supply growth from the middle of the year following four years of rapid supply growth.

2019 was also an "unprecedented" year in terms of new project FIDs, with 71 million mt/year of supply being approved.

This, Shell said, was a sign of the industry's "belief" in long-term demand growth."

Longer-term growth
Over the longer-term, Shell said global LNG demand is expected to double to 700 million mt/year by 2040.

"Asia is expected to remain the dominant region in the decades to come, with South and Southeast Asia generating more than half of the increased demand," it said.

Last year, there was only a modest rise in imports to Asia compared with the previous two years, a result of mild weather and rising electricity generation from nuclear power in Japan and South Korea.

As well as China, Shell believes emerging LNG markets in South and Southeast Asia will help absorb growing supply.

In 2019, Bangladesh, India and Pakistan imported a combined 36 million mt, an increase of 19% over 2018, Shell said.

Last year also saw an increase in diversity of contractual structures, which provided a wider range of options to LNG buyers, Shell said.

New spot-trading mechanisms and a wider variety of indices used for long-term contracts point towards LNG becoming an "increasingly flexible commodity," Shell said.

"There is a bigger diversity of the ways contracts are indexed," Hill said, adding: "Buyers are given different mechanisms for their market conditions."

2019, Hill said, saw LNG contracts indexed to Asian, European and US gas prices for the first time.