LNG market needs US$200 billion investment to meet demand

The LNG market is set to continue its rapid expansion into 2020 as facilities approved for construction in the first half of the decade come on line, in a development expected easily to meet sharp growth in consumption of the super-chilled fuel.

But a decline in spending in the sector since 2014 as a result of weaker energy prices will create a supply gap from the mid-2020s unless new investments emerge, Shell said in its 2018 LNG Outlook.

While LNG demand is expected to grow from 293 million tpy in 2017 to around 500 million tpy by 2030, supplies are seen slipping to 300 million tpy due to a lack of new projects and natural declines in existing production, Shell’s head of integrated gas and new energies, Maarten Wetselaar, said.

The cost of developing the required capacity is roughly US$1 billion per million tpy, Wetselaar said. That does not include investments in the development of the gas fields associated with LNG plants, he told reporters.

“The industry is still looking at quite a challenge to build supplies to meet demand in the 2020s,” he said.

Shell is considering moving ahead on new projects such as LNG Canada and Lake Charles on the US Gulf Coast, Wetselaar said. The Anglo-Dutch company is expected this year to launch the Prelude floating LNG plant in Western Australia, one of the largest and most complex gas projects in history.

“Our investment cycle is coming to an end with Prelude coming on stream this year. We will have the space to take investment decisions, (but) it doesn’t necessarily mean we will spend the money.”

Competition is fierce as projects have to face off against the lowest-cost gas hubs such as North America, where the shale boom has led to abundant and cheap supplies, as well as Qatar, Russia and East Africa.

“In order to take a final investment decision on a project of this size you want to make sure it is as low-cost as it can be because the cost of an LNG project ... is going to stick with you for 30, 40 years,” Wetselaar said.

In its annual report – a legacy from BG Group, which the company acquired in 2016 – Shell forecast global demand for gas to grow by an average 2% per year until 2035. That would make gas the fastest-growing source of energy over the period.

LNG demand is set to grow twice as fast as gas power plants in China, South Korea and India switch from coal and governments move to reduce carbon emissions, Shell said.

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