Global energy supplies to tighten: Shell CEO

Global crude refining capacity is running out and LNG supplies are expected to remain tight, according to Shell chief executive Ben van Beurden, indicating that uncertainty in energy markets will likely persist for the foreseeable future.

Global refining capacity has fallen in the past few years, van Beurden said on 29 June in Singapore. This is firstly because companies such as Shell have started to shut down refineries, partly to convert them into biofuel facilities. Shell Singapore's Energy and Chemicals Park on Pulau Bukom has cut refining capacity to reduce emissions and produce cleaner fuels. It reported about 580,000t of greenhouse gas reductions in 2021 compared with a year earlier because of this switch.

There have also been losses in refining capacity and fuel supplies because of sanctions on Russia following its invasion of Ukraine. "All of this means that the global refining system is running flat out, and there is not much you can do about it," said van Beurden.

Reduced refining capacity means that fuel demand, such as for gasoline and diesel, cannot be met by refiners regardless of whether crude supplies increase, he said, adding that spare capacity is also running low because of a lack of investment in exploration and production.

Europe is becoming increasingly reliant on LNG to replace a fall in Russian gas supplies to the region as deliveries by Russia's state-controlled Gazprom through the Nord Stream pipeline have been disrupted. LNG is likely to remain expensive as it will be difficult to replace all the pipeline gas capacity out of Russia, said van Beurden.

Singapore also relies on natural gas for about 95pc of its gas supplies. State-controlled Singapore LNG has twice this year taken the unusual step of buying spot cargoes, indicating that it is making calculated moves to ensure it does not run the risk of falling short of LNG.

The front half-month of the ANEA, the Argus assessment for spot LNG deliveries to northeast Asia, was last assessed at $40.055/mn Btu on 1 July, $8.37/mn Btu higher than two weeks earlier. Spot LNG prices in Asia have been tracking gains in European gas hub prices.

"I do believe we are going to be facing quite a bit of uncertainty in markets for some time to come," said van Beurden, and whether this unpredictability eases "will depend on how long the Ukraine war lasts, and how long it will take for new capacity to come on stream".

By Prethika Nair