Royal Dutch Shell Group .com Rotating Header Image

Gas producers pumping up demand

  • The Wall Street Journal

After spending hundreds of billions of dollars to transform themselves into global natural gas giants, some of the world’s biggest energy companies face a new challenge: generating more demand as supplies threaten to balloon and prices languish.

Companies including Royal Dutch Shell, Total and Cheniere Energy are trying to establish new markets for liquefied natural gas, a super-chilled version of the fuel that can be shipped around the world. Producers are promoting the use of LNG for industrial trucking and shipping. Companies also say they are considering building the power plants and infrastructure necessary to provide gas and electricity in developing markets such as South Africa and Vietnam.

”If we want to unlock these pockets of demand in emerging markets, we all have to do more to make that happen,” said Peter Mackey, an executive at GE Power, which designs LNG facilities. “We have to ultimately help the end customer; it’s about delivering the whole solution.”

The opportunities and challenges of developing a global LNG market will be a focus for Shell, BP, Chevron, ExxonMobil and other energy companies gathering this week in London for an industry conference.

LNG prices are mired at roughly half of their 2014 peak, with LNG delivered to Asia trading around $US8.70 per million British thermal units. And after the global energy industry spent $US725 billion from 2007 to 2016 on LNG projects, according to consultant Wood Mackenzie, large new supplies are coming online in the US, Russia, Australia and Qatar.

Shell spent over $US50bn to buy BG Group in 2016 to become the world’s biggest shipper and producer of LNG. Chevron has recently brought online two Australian LNG projects that cost over $US80bn. Shell and Exxon say they produce more gas than crude oil today, and BP will do so by 2025, according to Wood Mackenzie.

These shifts in strategy were aimed at capturing demand for gas as a cleaner-burning alternative to coal for electricity and as a transportation fuel as governments across the world sought to cut emissions.

Demand for natural gas will grow about 1.5 per cent a year out to 2040, including both LNG and gas transported by pipeline, compared with oil-demand growth of 0.4 per cent a year, according to the International Energy Agency. From 2016 to 2020, trade in LNG is expected to increase by one-third to 350 million tonnes a year, Shell estimates.

So far, companies have found customers for that new gas, mostly because it was inexpensive and technological innovations cut the cost of building import terminals. The number of countries importing LNG has risen to 40, from 17 a decade ago, according to GIIGNL, the International Group of Liquefied Natural Gas Importers. But many countries, such as Myanmar, Vietnam and South Africa, don’t have the infrastructure to import and distribute large amounts of natural gas for home heating and electricity. After building all of that LNG production capacity, companies now are forced to look to such less-developed and potentially riskier markets. “The next wave of LNG consumers are less creditworthy, less experienced, less organised, and politically less predictable,” said Jason Feer, head of business intelligence at consultancy Poten & Partners.

Total said it was interested in supplying Myanmar and South Africa with LNG and building infrastructure including power plants to distribute power. It also is planning to build an LNG terminal in Ivory Coast along with Shell in a project allowing the west African country to plug more gas into its electricity system.

“We believe that LNG is a market which is more a buyer’s market than a seller’s market,” Total chief executive Patrick Pouyanne told investors in February. “If we want to create a demand, we need to be more integrated.”

Shell said it sought to participate in projects to build import terminals and to find partners to construct power plants, in addition to supplying LNG.

“Shell overall is moving more into the power sector both in terms of investment propositions and the trading business,” said Steve Hill, executive vice-president for Shell Energy.

US gas exporter Cheniere Energy teamed up with French utility EDF on a project including a gas import terminal and power plant in Chile, to find an outlet for its gas. The project has stalled because of environmental permit issues, but Cheniere is sticking to its approach.

“We’re actively casting a global net for more such opportunities,” said Anatol Feygin, chief commercial officer at Cheniere. “As are all of our competitors,” he added.

Only one LNG-to-power project has come to fruition. Earlier this year Malta started importing LNG to fuel a power plant converted from fuel oil to natural gas.

SOURCE WITH CHART and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

Comments are closed.

%d bloggers like this: