Global LNG markets finely balanced amid strong Asian demand: Shell Australia

Global LNG markets will likely be finely balanced as a potential slowdown in the rate of delivery of some projects out of the US and growing demand in Asia tempers the impact of new international supply coming online towards the end of the decade, Shell Australia Country Chair Cecile Wake said May 22.

The combination of meeting energy needs while grappling with declining domestic production as well as advancing decarbonization goals is propelling countries such as the Philippines, Thailand, Vietnam, and Bangladesh towards LNG, Wake told S&P Global Commodity Insights on the sidelines of the Australian Energy Producers conference in Perth.

"I think we describe it as latent demand in South and Southeast Asia," she said, noting that within the region some markets were less price elastic than the others.

LNG buyers, particularly from price-sensitive markets such as India and Bangladesh, stayed away through most of 2022 amid high prices and volatile markets following the Russia-Ukraine war.

The Platts JKM -- the benchmark price for LNG cargoes delivered to Northeast Asia-- averaged about $33.9789/MMBtu for calendar-year 2022, compared with $18.59543/MMBtu in 2021, according to data from Commodity Insights.

The Platts assessed JKM for July was assessed at $11.485/MMBtu on May 21, down 0.1% on the day, the data showed.

Despite this price elasticity of demand, most buyers were likely to have a mix of spot and long term to create physical hedges and manage potential supply risks, she said.

Shell, for its part, was competitively positioned to serve Asian markets and its trading model allows the company to supply a combination of term cargoes to buyers while also maintaining a flexible portfolio to cater to the needs of evolving markets, Wake said.

In 2023, Shell delivered the first commissioning cargo to Vietnam's first LNG import terminal while also supplying the first LNG cargo delivery at Philippines' Batangas LNG terminal.

Confidence in Prelude FLNG

In Australia, Shell operated projects include Prelude, Crux, and QGC and non-operated ones comprise Browse, Gorgon, North West Shelf, and Arrow.

The operations in Australia are poised to maintain their supply position, ensuring high utilization and high reliability of the company's assets, Wake said.

"At Prelude, the story of the last 18 months has been one of increasing reliability, increasing utilization and a real maturation of that asset," she said.

This comes as Prelude Floating LNG facility faced several outages since it started production in June 2019, with one such shutdown resulting from a fire that broke out at the facility in December 2021 and caused a full power loss.

Wake anticipated that volumes at Prelude this year will likely be higher than last year as the facility does not have a statutory turnaround.

"So, when we look at it through the utilization of the facility and the reliability of the facility, it has come out of that statutory shutdown with both higher reliability and a much tighter band of where we think the performance range is," Wake shared.

Steering through regulations

The Western Australian Domestic Gas Policy seeks to make gas equivalent to 15% of exports available for Western Australian consumers.

"We felt that we were well engaged and had the opportunity to put our views forward in the context of WA Dom gas. We are firm in our view that in both WA and the East Coast, a functioning domestic market is key and that we've got a positive role in that," Wake said.

"And we would also say that we believe that giving producers the opportunity to access export markets as well as domestic markets will result in more gas coming out of the ground and therefore more gas available for domestic markets," Wake added.

When it came to the consultation on offshore EP, Shell had an opportunity to put across its views as part of a consultation, she said.

"However, it is very disappointing that that a really important and vital reform of that legislation had been delayed," Wake added.

The legislation to implement outcomes of the review that included a focus on clarifying the consultation requirements for offshore approvals did not pass the Senate last week, as worker safety provisions and ensuring certainty of the Petroleum Resource Rent Tax reforms had been prioritized, Minister for Resources and Minister for Northern Australia Madeleine King said May 21 at the same event.

An adequate and appropriate offshore regulatory regime would not only benefit gas producers but will also be in the interests of the community, Wake said.

"Stakeholders needed that reform to come through. So, we would certainly be looking for that to come forward again as soon as possible," she added.