Shell: Europe’s LNG demand to intensify competition and dominate trade in the long term

Europes’s increased need for liquefied natural gas (LNG) will likely intensify competition with Asia for limited new supply available over the next two years and may dominate LNG trade over the long term, energy major Shell stated in its LNG Outlook 2023.

LNG regasification terminal, Gibraltar. Source: Shell/Stuart Conway.

It is reported that European countries, including the UK, imported 121 million tonnes of LNG in 2022, an increase of 60% compared to 2021, which enabled them to withstand a slump in Russian pipeline gas imports following its invasion of Ukraine.

Furthermore, a 15 million tonne fall in Chinese imports combined with reduced imports by South Asian buyers helped European countries to secure enough gas and avoid shortages. However, Europe’s rapidly growing demand for LNG pushed prices to record highs and generated volatility in energy markets around the world, Shell said.

With reduced Russian pipeline gas, LNG emerged as an increasingly important pillar of European energy security, supported by the rapid development of new regasification terminals in northwest Europe, such as those in Germany and Finland. In contrast, China is evolving from being a rapidly growing import market to playing a more flexible role with an increased ability to balance the global LNG market.

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“The war in Ukraine has had far-reaching impacts on energy security around the world and caused structural shifts in the market that are likely to impact the global LNG industry over the long term”, said Steve Hill, Shell’s Executive Vice President for Energy Marketing. “It has also underscored the need for a more strategic approach – through longer-term contracts – to secure reliable supply to avoid exposure to price spikes.”

According to the energy company, total global trade in LNG reached 397 million tonnes in 2022. A recent report by GlobalData found that Shell led the global long-term LNG import contract volumes signed by key purchasing companies in 2022, with a contracted capacity of 6.7 million tonnes per annum (mtpa).

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The UK-headquartered energy giant recorded the highest-ever profit on a year-on-year basis last year, reaching nearly $40 billion, which surpassed its previous annual record of $28.4 billion in 2008.

Industry forecasts expect LNG demand to reach 650 to over 700 million tonnes a year by 2040, warning that more investment in liquefaction projects is required to avoid a supply-demand gap that is expected to emerge by the late 2020s.

Diverse new technologies are expected to reduce emissions from gas and LNG supply chains in order to help consolidate their role in the energy transition together with the growing industry focus on the development and deployment of decarbonised gases – including renewable natural gas, synthetic natural gas, hydrogen and ammonia – to deliver more sustainable energy security in the future.