Shell to cut LNG output on weaker demand

Shell expects to reduce LNG production by 8-17pc this quarter as global LNG demand slows because of the Covid-19 outbreak.

Shell may need to reduce oil and gas production, LNG liquefaction, and utilisation of refining and chemicals plants as a result of demand or regulatory requirements or constraints in infrastructure, the firm said, adding that sales volumes could be similarly affected.

The firm expects to reduce LNG production to 7.4mn-8.2mn t this quarter, down from 8.88mn t in the first quarter of this year and from 9.21mn t in October-December 2019. The firm produced 8.74mn t in January-March 2019. Integrated gas production will also be reduced, to 840,000-890,000 barrels of oil equivalent (boe) per day (134mn-142mn m³/d), with total upstream production anticipated at 1.75mn-2.25mn boe/d.

The Covid-19 outbreak has generated significant uncertainty about macroeconomic conditions, which is expected to have a negative impact on demand for oil, gas and related products, with uncertainty over oil supply also causing volatility in commodity markets, the firm said.

More than 90pc of the term contracts for LNG sales are oil price-linked with a price lag of typically three to six months, it said. The recent drop in oil prices may have provided an incentive for Shell's customers to defer contractual deliveries until later this year.

LNG sales rose to 19mn t in the first quarter of this year from 17.5mn t a year earlier, although realised LNG prices fell. Realised gas prices averaged $4.31/'000 ft³ ($3.67/mn Btu) globally, down from $5.37/'000 ft³ ($4.57/mn Btu) a year earlier.

The firm operates several LNG production facilities, including the 3.6mn t/yr Prelude FLNG, which temporarily suspended loadings in February and the 8.5mn t/yr Queensland Curtis LNG venture.

Shell also announced it would cut its dividend payments, the first time it has done so since the 1940s.

By Antonio Peciccia