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2017-05-12 / News

Shell’s LNG Outlook 2017 shows a growing export market

By r. brock pronko
Regional Business Analyst

Royal Dutch Shell has long been known as the world’s “oil giant,” but more recently the company has been positioning itself to become a major player in the global natural gas market. Locally, Shell is important to Pennsylvania because of its decision to build an ethane cracker plant in Beaver County, which could potentially lure manufacturers of chemicals and consumer goods made with plastic products produced by the plant. Shell has also become a gas producer and has explored the deep Utica in the Northern Tier.

Over the past few years, Shell has moved into the liquid natural gas (LNG) market. Following the acquisition of Repsol’s LNG portfolio outside North America for $3.8 billion and more recently with the acquisition of the BG Group, Shell’s position in the LNG market has developed into a unique combination of skill, supply and market positions across the globe.

The BG Group published an annual LNG outlook report, and after acquiring BG, Shell decided to continue publishing the reports. Shell’s first LNG Outlook, which was released earlier this year, draws on a broad range of independent industry data and internal analysis. The report identified potential markets for LNG exports and the factors driving global LNG demand.

The report showed the LNG market is growing from slightly under 250 million tonnes a year to over 350 million tonnes a year.

“About half the demand in natural gas growth is expected to come from the power generation sector, because natural gas is uniquely suited to complement renewables when sources such as solar and wind are not available due to weather conditions,” said Steve Hill, Shell’s EVP of Gas and Energy Marketing & Trading, in an interactive podcast with reporters.

Hill credits government environmental policies in Asia for supporting an increase in the consumption of natural gas, which emits 50 to 60 percent less carbon dioxide (CO2) than coal, and for a reduction in the utilization of coal in the industrial sector. More recently, Asian governments have suspended plans for over 150 coal-fired power plants.

Hill pointed to the slideshow that accompanied his talk, which showed that while Asia represents less than 20 percent of the global gas demand today, the region is expected to account for about 40 percent of natural gas growth between 2015 and 2030, because the combination of natural gas and renewables provide the cleanest reliable source of power.

“Since China instituted this policy, the air quality in Beijing has improved, and though they still have a long way to go, they’re on the right track,” said Hill.

“LNG is particularly important to China, because natural gas supplies are located too far from high demand markets for pipeline transportation, so floating storage units are being used to keep up with LNG demand.”

Although the outlook report forecast that Australia would become the world’s largest supplier of LNG, that forecast could be changing.

“Residents in eastern Australia experienced a threefold increase in energy prices last winter, and South Australia had a series of massive blackouts, because LNG exports are stripping away domestic natural gas reserves,” said Victoria Zaretskaya, the lead operations research analyst at EIA.

Two weeks ago, Australian Prime Minister Santos issued a directive that stated in case Australia falls short on domestic supplies, the gas available for LNG exports will be curtailed.

Despite a possible natural gas supply crunch, Victoria state in Australia announced a permanent ban of shale and coal seam fracking due to concerns of farmers and environmental groups over health and water risks. Other states are considering similar bans.

“We’re seeing this interesting situation happening in Australia where LNG exporters under long-term contracts to supply gas to foreign markets might not be able to fulfill those contracts because some states are banning fracking and the government is threatening to curtail LNG exports,” Zaretskaya.

“So, U.S. LNG exporters could end up fulfilling those Australian LNG contracts.” .

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