Global LNG trade could grow by around 10 million tonnes in 2021, or 2.8% compared with 2020 and bring total trade to 370 Mt, according to Royal Dutch Shell PLC's latest annual LNG outlook published Feb. 25.
In the outlook, Shell said Asian demand was expected to drive the growth this year as it continues to recover from the impact of the coronavirus pandemic. Shell also warned that a lack of final investment decisions last year for new natural gas liquefaction capacity would lead to a supply-demand gap in the mid-2020s.
Global LNG trade slightly increased to 360 Mt in 2020 from 358 Mt the previous year, even with the "unprecedented volatility" caused by the pandemic, Shell said. In addition to the 10 Mt of growth expected in 2021, Shell expected LNG trade growth to total around 12 Mt in 2022 and around 15 Mt in 2023, according to data in the outlook.
"LNG provided flexible energy during the pandemic, demonstrating its resilience," Shell's head of integrated gas, Maarten Wetselaar, said in a webinar to mark the launch of the outlook.
"The industry reacted swiftly to changing market conditions, diverting cargoes to shifting demand centers and through adjusting supply," Shell said.
Much of Asia saw its LNG demand fall back during the early stages of the pandemic between February 2020 and May 2020, but demand bounced back strongly in the second half of the year. China and India led the recovery in demand for LNG following the outbreak of the pandemic, Shell said, with China increasing its LNG imports last year by 11% to 67 Mt. India also increased imports by 11% in 2020 as it took advantage of lower-priced LNG to supplement its domestic gas production.
"Asian LNG demand recovery [is] projected to continue in 2021," Shell said, pointing to an estimate of increased demand of up to around 19 Mt.
Elsewhere, Shell saw demand staying mostly flat, with estimates of either limited growth or a slight fall in consumption across Europe, the Americas and the Middle East and Africa.
Trade behavior
Steve Hill, a Shell executive vice president, said an "equilibrium" was developing between long-term contracted LNG and spot LNG. He said spot trade had risen significantly over the past five years, and spot cargoes now represented around 30% of the overall LNG market.
"People often talk about an inevitable move to commoditization," Hill said. "But what we're actually observing is the rate at which spot cargoes as a portion of the overall market is growing is slowing down."
"We're seeing an equilibrium forming," he said. "The two commercial structures seem to be co-existing quite successfully and we're coming to a natural balance between the two."
Long-term contracts provided the security of supply and clarity over expected pricing, and the spot cargoes provide the flexibility, Hill said. "The two co-exist and in combination meet the needs of the buyer," he said.
Hill also said the spot price premium or discount to long-term contract prices had varied over the years, and there was no clear trend. Spot LNG prices have been hit by extreme price volatility over the past year, with the Japan Korea Marker benchmark spot Asian LNG price, or JKM, hitting an all-time low of $1.825/MMBtu at the end of April before rising to an all-time high of $32.50/MMBtu in mid-January.
Shell's outlook showed that oil indexation in term contracts remained the dominant form of pricing, but the JKM spot price was also seen as playing a bigger part in long-term contract pricing in 2020.
Supply gap
The pandemic, meanwhile, took its toll on new LNG export project approvals in 2020, Shell said, noting that just 3 Mt/year of new LNG production capacity was announced in 2020, down from an expected 60 Mt/year. Just one liquefaction project — Sempra Energy's Energia Costa Azul export project in Mexico — reached final investment decision in 2020.
"As demand grows, a supply-demand gap is expected to open in the middle of the current decade with less new production coming on stream than previously projected," Shell said.
Wetselaar said Shell would continue to target LNG expansion through new projects, including through the expansion of existing projects, such as in Nigeria. He said Shell was also talking to Qatar about a role in its LNG expansion. Qatar Petroleum announced earlier this month it had made a final investment decision on its project to expand LNG production capacity from 77 Mt/year to 110 Mt/year.
Further out, LNG demand is estimated to hit 700 Mt/year by 2040, almost double current rates. Asia is expected to drive nearly 75% of this growth as domestic gas production declines and LNG substitutes higher emission energy sources.
"For instance, China's heavy-duty transport sector consumed nearly 13 million tonnes of LNG in 2020, almost doubling from 2018, to serve the fast-growing fleet of well over 500,000 LNG-fueled trucks and buses," Shell said. "LNG-fueled shipping is also growing, with the number of vessels expected to more than double and global LNG bunkering vessels set to reach 45 by 2023."
Stuart Elliott is a reporter with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.
