A decline in spending in the LNG sector since 2014 due to weak energy prices will create a supply gap beginning in the mid-2020s, unless new investments in the super-chilled fuel are made. World Maritime News photo.
Shell is considering moving ahead on projects, including LNG Canada
Royal Dutch Shell says that over $200 billion needs to be invested in developing new liquified natural gas projects to keep up with a projected boom in demand for LNG by 2030.
There are a number of LNG facilities approved in the first half of the decade that are coming on line into 2020. Production is currently set to meet demand, however, LNG producers cut their spending on such mega-projects beginning in 2014 when energy prices tanked.
And in its annual report, Shell forecasts global demand for natural gas to expand by an average of 2 per cent per year until 2035, making gas the fastest-growing source of energy over that period.
In 2017, Japan was the largest importer of LNG, followed by China as Chinese imports surged past South Korea’s. Last year total demand for LNG in China reached 38 million tonnes, a result of continued economic growth and policies to reduce local air pollution through coal-to-gas switching.
“We are still seeing significant demand from traditional importers in Asia and Europe, but we are also seeing LNG provide flexible, reliable and cleaner energy supply for other countries around the world,” Maarten Wetselaar, Integrated Gas and New Energies Director at Shell said.
Wetselaar added that “In Asia alone, demand rose by 17 million tonnes. That’s nearly as much as Indonesia, the world’s fifth-largest LNG exporter, produced in 2017.”
Despite the projected need for more LNG, energy companies recovering from the drop in oil and gas prices are still wary about investing in the complex and expensive facilities. The projects require trains, or large processing units, to cool the natural gas to about -160°C. Once in a liquified state, the LNG is shipped to demand centres where it is converted back into gas.
In its 2018 LNG Outlook, Shell says that demand is expected to grow from 293 million tonnes per year (mtpa) in 2017 to about 500 mtpa by 2030. Wetselaar says current supplies are expected to slip to 300 mtpa because there is a lack of new projects and natural declines in existing output.
Wetselaar says the cost of developing the required capacity is about $1 billion per mtpa, and this estimate does not include investments in the development of gas fields associated with LNG plants.
“The industry is still looking at quite a challenge to build supplies to meet demand in the 2020s,” he said.
To prepare for the rising demand, Wetselaar says Shell is considering moving ahead on some of its projects still in preliminary phases, including LNG Canada and Lake Charles.
As well, Shell is expected to launch its Prelude floating LNG plant located in Western Australia this year. Prelude is one of the largest and most complex gas projects undertaken to date.
“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.”
The US shale boom has created abundant and cheap supplies and other fields in Qatar, Russia and East Africa show promise as well.
“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 told Reuters.