Shell to cut LNG output on weaker demand: Update

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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.

Shell 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. It produced 8.74mn t in January-March 2019.

The company expects the reduction to take place across several assets in Australia and Trinidad, although there will be no material change across the portfolio, Shell's chief financial officer Jessica Uhl said.

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.

Around 40pc of the reduction in output is expected as a result of production cuts agreed at Opec+ level, the firm's chief executive Ben Van Beurden said. The remaining cuts may be the result of economic shut-ins, portfolio optimisation or logistical constraints due to the Covid-19 outbreak, in the event of any facility being unable to continue to operate safely, he said.

The pandemic 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 that it would cut its dividend payments, the first time it has done so since the 1940s.

By Antonio Peciccia