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LNG glut 'conspicuously absent', Shell chief says

01 Feb 2018 16:41 GMT
LNG glut 'conspicuously absent', Shell chief says

London, 1 February (Argus) — The global LNG glut is "conspicuously absent" and the market is in fact "rather tight", Shell chief executive Ben van Beurden said today.

There was not going to be a glut, but there would be ample liquefaction for the market to absorb, which is "exactly what has been happening", he said. Liquefaction capacity grew by 30.5mn t/yr last year, while a further 36.5mn t/yr was scheduled for this year.

But these increases were much more visible to the market than the growth in global demand, van Beurden said, adding that the tightness in the market had taken some by surprise.

"China is very strong when it comes to gas demand growth, and even stronger when it comes to gas import growth, and even stronger again when it comes to LNG demand", he said.

Chinese LNG demand in 2017 rose to 38.3mn t from 26.2mn t a year earlier — growth equivalent to 40pc of aggregate liquefaction capacity brought on line over the course of last year.

Chinese demand was driven by a government push to transition to gas from coal for power generation and domestic heating over air pollution concerns. This programme remains incomplete, offering the potential for future demand growth.

Similar programmes to promote gas use in India and South Korea, also to curb air pollution, could sustain demand growth.

Pakistan's LNG imports surged last year, with the country having sought to replace fuel oil use with gas. And latent and new demand from Pakistan's power sector offers ample scope for imports to expand beyond the 8.75mn t/yr of capacity in place.

And other markets have been making use of the lower capital expenditure costs and quicker lead times for installing floating storage and regasification units (FSRUs) compared with building onshore terminals.

"We believe in the fundamentals of the LNG market going forward", van Beurden said.

Europe provides a measure of whether there is a supply glut, with LNG heading to the continent when there is insufficient demand elsewhere, he said. But the LNG industry has not used Europe as "the market of last resort" and there was no slump in European prices, he said.

Europe's LNG sendout last year was its highest since 2012, but this was the result of high demand in southern Europe rather than excess cargoes being offloaded at liquid hubs.

Other market participants have expressed similar views in recent months, with US exporter Cheniere Energy's director Eric Bensaude having said there was "no evidence" of oversupply in the LNG market.

One of the main criteria for whether the market could be considered oversupplied is whether delivered prices drop enough to discourage LNG exports. But an incentive for US exports to continue is likely to remain at least in 2018-19.