Battle for LNG between Asia and Europe to heat up: Shell

The competition between Asia and Europe for limited global LNG supply will heat up over the next two years as the latter continent seeks additional volumes to replace Russian gas, Shell said on February 16.

European countries including the UK imported 60% more LNG in 2022 than in the year before, with supplies totalling 121mn metric tons, Shell said in its LNG Outlook 2023 report. This helped them withstand a drastic fall in Russian pipeline volumes.

A 15mn-mt decline in Chinese imports and reductions by other Asian buyers helped Europe secure enough gas to avoid shortages, Shell said. The surge in Europe's appetite drove prices to historic heights and spurred energy market volatility across the world.

LNG is becoming increasingly critical for European energy security, supported by the fast-tracked development of new regasification capacity, Shell said. China, meanwhile, is shifting from being a fast-growing import market to playing a balancing role.

“The war in Ukraine has had far-reaching impacts on energy security around the world and caused structural shifts in the market that are likely to impact the global LNG industry over the long term,” Steve Hill, Shell’s executive vice president for energy marketing, commented. “It has also underscored the need for a more strategic approach – through longer-term contracts – to secure reliable supply to avoid exposure to price spikes.”

The market will remain tight in the near term, creating a risk of supply and demand shocks and with limited new supply coming online, Shell said, noting that more investment in supply was needed to meet future demand.

"When we look at the characteristics that Europe had that allowed it to play that balancing role [prior to Ukraine's invasion], many of them are positioned in China today, or have been growing very rapidly in China today," Hill said. "China has the combination of domestic production, pipelines, long distance pipeline imports, LNG imports infrastructure, gas storage, alternative fuel capability, that allows it to adjust its energy mix."

China handed back the title of the world's biggest LNG importer to Japan last year, as demand stagnated as a result of COVID-19 restrictions and high global prices. 

Global LNG trade reached 397mn mt in 2020, and industry forecasts see demand reaching 650 to over 700mn mt by 2040.

"Diverse new technologies to reduce emissions from gas and LNG supply chains will help to consolidate its role in the energy transition," Shell said. "And there is growing industry focus on the development and deployment of decarbonised gases – including renewable natural gas, synthetic natural gas, hydrogen and ammonia – to deliver more sustainable energy security in the future."