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Insights into LNG dynamics – Q&A with Jefferson Edwards, Vice President of Shell Energy

Jefferson Edwards will be one of the speakers at the Budapest LNG Summit, to be held on 9 April 2024.

Earlier in February, Shell published its LNG Outlook 2024, according to which global demand for liquefied natural gas (LNG) is estimated to rise by more than 50 per cent by 2040, as industrial coal-to-gas switching gathers pace in China and South Asia and South-East Asian countries use more LNG to support their economic growth. 

We spoke with Jefferson Edwards, Vice President of Shell Energy, about the main trends in the LNG industry worldwide, supplies to Europe following global disruptions and its role in a decarbonised world. 

Q: If you could mention two main trends in the LNG industry, what would they be?

A: The market has been tight since the loss of Russian pipeline gas into Europe, materially impacting the global LNG market. Excluding pipeline trade in North America, the market lost more than 100 billion cubic metres (bcm) of pipeline exports in 2023 (compared with 2019). Only 65 bcm (approximately less than 50 million tonnes equivalent) of additional LNG exports have come into the market; creating a structurally tight market.

However, 2023 was a year of countervailing factors. In fact, weak demand factors helped balance the market, putting downward pressure on prices. Furthermore, a milder winter in the northern hemisphere, coupled with high inventory in both Europe and Asia, helped to lower the heating demand. In summer, thermal generation did pick up briefly due to heatwaves, but they were short-lived and capped by the higher availability of nuclear in Japan, South Korea and France. At the same time, Chinese demand recovery was moderate and industrial demand in Europe weakened, only starting to show an uptick towards year-end.

But while LNG spot prices fell in 2023 from the historic highs of 2022, prices remained above historical norms due to security of supply concerns.

Q: What are the key drivers behind LNG growth both today and in the long term (for example, after 2040)?

A: Gas and LNG have an important role both in energy security and in the energy transition. But the long-term role of gas and LNG depends on efforts to abate emissions and develop cleaner pathways, which are explored in the Outlook.

A key engine for gas and LNG demand growth to 2040 is in Asia. Growth in the LNG industry is being driven by strong fundamentals: economic growth, population growth and GDP per capita all contribute to growing energy demand. More than half (58 per cent) of demand and two-thirds of growth will come from outside the power sector – from industry, buildings and transport. In fact, demand in Southeast Asia is somewhat different, driven more by power generation and LNG replacing declining domestic gas production. Thus, LNG will be the fastest-growing source for Asia and will account for around 75 per cent of all new supply by 2040. And Europe will continue to drive demand for LNG.

Q: According to the outlook, Europe will still need LNG despite a decrease in gas consumption. How do you look at LNG supplies to Europe, considering recent global developments (a rise in demand in China, Biden’s LNG pause)? 

A: European buyers have accounted for the most long-term contract signings by volume in the market over the last two years with a noticeable uptick last year. But, even this is still not enough. We see domestic gas production plateauing in Europe, while the Russian pipeline and other pipeline imports are all declining.

Even when considering those term contracts which European buyers have signed to ensure supply security, there is still a supply gap versus projected demand under the Fit for 55 outlook through 2030. European buyers will continue to rely upon the spot market to meet demand requirements – by 2030, this could be as much as 50 million tonnes. Given that some of the recently signed contracts will only start in the late part of the 2020s, there could be additional spot demand if some of the contracted volumes get delayed.

Q: We are still talking about high prices and volatility. What is the role that LNG can play in creating a more predictable market? 

A: The last three years of contracting activity have not only reset the commercial structure for LNG but have also shown the durability of long-term contracts. It has been a record stretch for the volume of contracts signed: nearly 200 million tonnes per annum (mtpa) of cumulative SPAs from 2021 to 2023. While portfolio players continue to play a role in securing term supply, end users – particularly from Chinese and European buyers – have continued signing major long-term contracts with tenors well beyond 10 years; further proof that security of LNG supply remains critical for buyers in the energy transition.

Q: What about LNG decarbonisation (after 2050 for example)? What are the main trends and alternatives?

A: Gas and LNG have an important role both in energy security and in the energy transition. But the long-term role of gas and LNG depends on efforts to abate emissions and develop cleaner pathways. LNG has a variety of solutions to address emissions today and offers pathways for near-zero solutions for tomorrow, as underlined in the LNG Outlook. It doesn’t look beyond 2040, however, in any of the data areas.

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