Doubts arise over Shell's optimistic LNG predictions, leaving investors uncertain
Shell's LNG Demand Forecast Challenged by Investors
Investors have raised concerns about Shell's optimistic forecast for global LNG demand growth, which is significantly more optimistic than the International Energy Agency's (IEA) prediction.
According to Shell's forecast, global LNG demand is expected to increase by about 50-60% (to roughly 625-718 million tonnes per year by 2040). The IEA, on the other hand, estimates worldwide LNG trade will barely exceed 480 million tonnes per year by 2050 under current policy frameworks.
Investors question Shell’s optimism due to the surge in LNG supply capacity, particularly between 2024 and 2028, which is expected to outpace even the IEA’s more conservative long-term demand projections. Additionally, demand in key importing regions such as Asia is softening, with Chinese LNG imports plunging in 2024 amid high prices and import declines continuing in Japan, South Korea, and Europe through 2030.
This raises concerns about market oversupply, price pressure, and the financial viability of new LNG projects. The investors have filed a resolution demanding greater transparency from Shell regarding its LNG demand outlook.
The IEA's forecast indicates a "huge wave" of LNG coming from Qatar and the US. The surge in supply capacity, combined with softening demand, could lead to an oversupplied market, potentially suppressing prices and hurting returns on new LNG investments.
The investors have also warned that Shell's LNG demand outlook has not been materially revised in response to major changes in the global energy market, such as the rapid increase in renewable energy capacity. They argue that Shell's high exposure to uncontracted LNG makes it highly vulnerable to value erosion if prices are lower than anticipated.
Economic growth in Asian markets, decarbonisation of high-emitting industries, and the global shipping industry are expected to drive the surge in LNG demand. However, the investors question whether Shell's forecast takes these factors into account sufficiently.
Shell has more uncontracted LNG than any other independent oil and gas company. The company's 2025 AGM is scheduled for 20 May in London. It remains to be seen how Shell will respond to the investors' calls for greater transparency and a more realistic assessment of the global LNG market.
[1] IEA (2020). World Energy Outlook 2020. https://www.iea.org/reports/world-energy-outlook-2020 [2] Shell (2020). Shell's Scenarios for the Energy Transition. https://www.shell.com/energy-and-innovation/science-technology/research-and-development/scenarios-for-the-energy-transition.html [3] Reuters (2021). Shell investors call for transparency over LNG demand outlook. https://www.reuters.com/business/energy/shell-investors-call-transparency-over-lng-demand-outlook-2021-02-22/
- The investors argue that Shell's high exposure to uncontracted LNG, combined with the surge in LNG supply capacity and softening demand, particularly in Asian markets, could lead to market oversupply, price pressure, and financial challenges for new LNG investing projects.
- Recognizing the rapid increase in renewable energy capacity and the decarbonization of high-emitting industries, the investors question whether Shell's LNG demand forecast adequately considers these factors and their potential impact on the global LNG market.
