LNG remains attractive despite ‘tough patches’: Shell CEO

Shell PLC CEO Wael Sawan argued Oct. 6 that the fundamentals underpinning LNG remain "very attractive," even as global prices hover around recent peaks during the second major supply-side disruption to rock the global market this decade.

"LNG continues to be diversified, it continues to be reliable, it continues to be flexible," Sawan said at the Energy Intelligence Forum in London.

Shell is a major LNG player. Last week, the company announced a final investment decision to develop a second phase of the LNG Canada export facility, which it operates. The expansion is set to double the project's capacity to 28 million metric tons/year, with commercial operations expected to begin in the early 2030s.

Sawan allowed that the international LNG market has faced "a couple of tough patches" amid the ongoing Middle East war and Russia's full-scale invasion of Ukraine. Still, he highlighted the projected price dip expected across the coming years as an anticipated wave of new supply hits the market.

Sawan also voiced continued confidence in the long-term viability of Middle Eastern energy supplies, despite the ongoing war.

"Those resources will get to the market," he said. "We continue to work with government partners in the Middle East to be able to figure out what I hope will be a post-conflict world will look like."

In addition to diversification, Sawan said he expects market players to "build resilience" into energy value chains.

Chevron CEO Mike Wirth offered a more tempered assessment of LNG market growth at another session during the London forum. While he also said demand would likely grow, Wirth cautioned that he sees "a wider range of error bars around the forecast."

LNG faces challenges from alternatives, Wirth argued, such as liquid petroleum products, which, he said, have energy density and portability advantages relative to the super chilled fuel. Different energy sources pose other challenges, Wirth asserted.

"When you look at natural gas and LNG in particular, it's not as clean as renewables, and it's not as affordable as coal," he said.

Platts, part of S&P Global Energy, assessed the JKM benchmark for LNG delivered into Northeast Asia at $26.159/million British thermal unit on Oct 6. The index is 137% higher than the same time last year.

Venezuela gas push

Sawan also discussed Shell's growing efforts in Venezuela. He explained the company sees more opportunities to differentiate itself in gas rather than heavy oil as it re-enters the resource-rich country in the months since US forces removed then-President Nicolás Maduro in January.

Sawan highlighted Shell's work to develop phase 1 of the Loran gas field and the Dragon gas field.

"Those are offshore, which addresses some of the potential security issues," he said, adding they would be "hardwired" into infrastructure linked to the company's nearby Manatee gas project in Trinidad and Tobago. That gas will then feed into the Atlantic LNG export facility in Trinidad and Tobago.

"The nature of that broader opportunity is one that we feel very confident in," he said.

Shock absorber limits

When it comes to the oil market, Sawan said industry players had been "positively surprised by the strength of the [market's] shock absorbers when truly tested" after eight months of the US-Iran war.

Chinese consumption dynamics, bumper refining runs, high inventories, improved exports by Gulf states in recent weeks and large quantities of oil on water have been cited as factors softening the impact of the crisis, which sent Platts Dated Brent beyond $140/b in April and diesel cracks to record highs.

However, "there is a limit to how much those shock absorbers can continue to take," Sawan said, particularly with the Ukraine war also roiling markets.

With increased volatility, Shell is focused on the fundamentals, Sawan said, and the "basics of needing diverse sources of supply [and] diverse customers," as well as a resilient balance sheet.

The company will therefore "triple down" on the basins where it is a "world class" operator, he said, adding that he was "disappointed" with Shell's historic track record on exploration.

That means "a bit more in Namibia, a bit more in Angola, looking further at Brazil," Sawan said. Its Graff discovery in Namibia – alongside TotalEnergies' Venus find – put the Orange Basin on the exploration map, while its Brazilian output has neared 500,000 barrels/day of oil equivalent this year.

Beyond oil, Sawan said the company's integrated trading team had allowed it to create value in a "more volatile world," and said he was bullish about both the downstream and chemicals sectors.