The Hague-based LNG giant Shell sees a bright future for the global liquefied natural gas industry, however, the company will think twice prior to taking a final investment decision for a new liquefaction project due to the market conditions.
There has been only a small number of final investment decisions for new LNG export projects around the globe in the last couple of years due to the oil and gas price downturn and the much discussed “oversupplied” market.
However, new supply projects will be needed to cover the growing demand for the chilled fuel.
To remind, Shell became the world’s largest independent producer, marketer and trader of LNG following its $30 billion takeover of the UK-based BG Group in February 2016.
The company is involved in every stage of the LNG value chain – from finding the gas, liquefying and shipping it, to regasification and distribution to customers.
“We’re very bullish on the LNG market,” Shell’s finance chief Jessica Uhl said during a briefing discussing the company’s new strategy in London on Tuesday.
Shell expects global LNG markets and demand to double by 2030 as compared to 2015 assuming there is enough investment in additional LNG supply projects.
“There is a lot of (LNG) supply that has come on stream during the last year, which the market has absorbed, and there is more coming on stream. So it is really about when does the world need more LNG going into the 2020s,” Uhl said answering a question from the audience on when Shell is planning to take a final decision for its next LNG export project.
“I would expect in the next couple of years, we would be seriously looking at an FID in that space,” Uhl said.
While LNG demand continues to grow, the flow of final investment decisions for new projects has almost stopped, Maarten Wetselaar, the head of Shell’s integrated gas unit said during the same briefing.
“A more complex competitive environment has developed, in which the strongest projects, sponsored by the strongest players are more likely to be developed,” Wetselaar pointed out.
As LNG export projects take more than four years to start production, it will “take well into the next decade for new supply to come to the market” to match the growing demand.
“These two effects point to a plausible scenario of a supply shortage emerging in the early 2020s,” Wetselaar said.
The key to new LNG export projects coming to fruition is certainly the factor of lowering costs, he said.
Each project has distinctive characteristics that include abundant and economically attractive feed gas, proximity to key markets, and competitive construction costs.
“Our aspiration is to lower the all-in LNG supply unit costs of our new projects towards $5/mmBtu,” Wetselaar said
“Some of these opportunities, like LNG Canada and Lake Charles, are post-FEED, and near-term investable if we choose to go ahead. Others, such as Abadi or Browse in Asia Pacific, or Tanzania in Eastern Africa, are pre-FEED and therefore medium-term investment options, ” he said.
LNG World News Staff