Europe’s increased need for liquefied natural gas (LNG) will boost competition with Asia for LNG over the next two years as supply remains limited, Shell (SHEL.L) said on Thursday.
European countries, including the UK, imported 121 million tonnes of LNG last year, up 60% from 2021, helping them cope with cuts to Russian piped supply, Shell said in its LNG outlook for 2023.
A drop in Chinese demand by 15 million tonnes as well as reduced imports by South Asian buyers due to high prices helped Europe acquire supply.
In 2022, gas prices hit new highs, pushing Asian spot LNG prices to follow suit as they hit record highs near $70.5 per million British thermal units (mmBtu).
Prices, however, are down more than 70% from those highs.
“In the near term, the global LNG market is expected to remain tight and exposed to supply and demand shocks, with limited new supply coming online. More investment in supply will be needed to meet future LNG demand,” Shell said in the report.
“LNG is becoming an increasingly important pillar of European energy security, supported by the rapid development of new regasification terminals in north-west Europe. In contrast, China is evolving from being a rapidly growing import market to playing a more flexible role with an increased ability to balance the global LNG market,” Shell said.
China handed back the title of top LNG importer to Japan in 2022, as demand slowed amid its strict zero-COVID lockdown measures and as high spot prices curbed purchases.
Analysts expect China’s LNG demand to rebound to between 70-72 million tonnes in 2023, short of 2021’s record levels, as LNG prices are set to remain relatively high and as lingering effects of the pandemic curb demand.
Total global LNG trade reached 397 million tonnes in 2022. Industry forecasts expect demand to jump to 700 million tonnes by 2040, Shell said, adding that a supply-demand gap is expected to emerge by the late 2020s.
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