By Clyde Russell
LAUNCESTON, Australia- Shell’s forecast that global demand for liquefied natural gas (LNG) will surge by more than 50 percent by 2040 is both bold and questionable, with some of the underlying assumptions not supported by current trends, especially in the key Asia markets.
The oil major released its LNG market outlook on Wednesday in which it estimated LNG demand will reach 625-685 million metric tons per year in 2040.
Global imports of the super-chilled fuel were 404 million tons in 2023, according to data compiled by commodity analysts Kpler, which was a record high and up from 395 million in 2022.
LNG imports have risen every year since 2012, when Kpler estimated global demand at 240 million tons.
Given the rapid and sustained growth in LNG imports over the past 11 years, Shell’s forecast may seem reasonable and achievable.
However, the details may give some pause for thought.
Shell’s case is largely built around robust demand growth in Asia, especially in China, which reclaimed the title of the world’s top LNG buyer in 2023 from Japan.
“China is the market that we are most bullish about this decade. And one of the reasons for that is the massive amount of new gas infrastructure that is coming on stream at the moment,” Steve Hill, executive vice president for Shell Energy, told analysts on a call after the report was released.
It is accurate that China is building significant new natural gas infrastructure, with one example being the 51.5 gigawatts (GW) of new power plants currently being built, according to data compiled by the Global Energy Monitor (GEM).
While that figure does look impressive, it fades in comparison to the 139.8 GW of coal-fired capacity China is currently building.
China has an operating fleet of 1,136.7 GW of coal-fired generation, but only 121.1 GW of gas- and oil-fired generation, according to the GEM.
What the GEM numbers show is that while China’s demand for natural gas is likely to rise in coming years, it’s reliance on coal as the mainstay of its electricity generation is locked in for decades to come.
There is a reason for this, and put simply it’s because China has vast resources of coal, and it can easily import any additional fuel it requires.
But most importantly coal is cheap, and is likely to remain considerably cheaper than LNG in coming years, unless Shell is also predicting a sharp decline in LNG prices, which would seem unlikely given the company expects a tight market for LNG in coming decades.
Cost is the reason why LNG is going to struggle to make the huge inroads into Asia that Shell is predicting.
