Shell: LNG is HUGE
In preview of Shell's LNG conference taking place in Houston this week - LNG 17 - Andy Brown, Upstream International Director, provided journalists a window into how Shell envisions the robust LNG market going forward, as well as the global outlook for gas.
From his remarks, it looks certain that Shell recognizes how important LNG is to its business. The global demand for natural gas was set to grow dramatically in most parts of the world, he showed. To cover the mismatch from supply meeting demand (as depicted in a chart) in each region, it would need to be met by gas from pipelines or LNG.
LNG, said Mr. Brown, would supply about 250 million tons/annum. He commented: "By 2025, we see that going to 500 million tons, assuming we have a doubling of energy demand over the next 12-13 years - a significant growth rate in that part of the business."
What was Shell's position in the global LNG market?
"Today, we are the leading international oil company in LNG. We have something like 22 million tons of what we call 'LNG equity' - LNG where we have an ownership share."
He added that Shell provided technical support to about 30% of the LNG around the globe, as the company typically provided the know-how where it bore a fairly substantial share of joint operations.
Of Shell's 22 million tons, he said the portfolio had been built up over four decades, with LNG positions in Nigeria, Qatar, Oman, Russia (Sakkhalin), Australia, Brunei, and Malaysia.
Brown reported, "Quite recently, we've come to a deal with Repsol S.A. on acquiring their midstream LNG assets in Peru and Trinidad. When that deal is concluded, then we expect another 4 million tons of equity LNG coming to Shell, but also quite relevant in that field we have 7 million tons of uptake from that, reinforcing our position as a leading LNG trader across the world."
He said that the $4.4 billion deal with Repsol involved $1.8 billion of debt. The acquisition, according to him, underpinned Shell's position and supplied the company with robust cashflow moving forward.
Additionally, he reported that Shell was building an LNG facility at Gorgon, where it held 25% and for which Chevron was the operator. The Gorgon Project, he reported, on an island off Australia, was nearly 50% complete.
Meanwhile, Shell was operating its Prelude floating LNG facility, which, he explained, was under construction in South Korea, would deliver 3.6 million tons of LNG and 1.7 million tons of condensate and LPG.
"It's almost 500 meters long, he said, "a par 5 golf course. Fully laden, it will weigh some 600,000 tons - the heaviest thing that man has ever built, and it's a real achievement to be constructing it."
He added that FLNG could also be employed in a potential project in Australia.
"Beyond this, we have a lot of projects that we are studying," he said, offering examples like expansion opportunities at Gorgon or Sakkhalin.
Mr. Brown said that in North America Shell was working with Kinder Morgan on a 2.5 million ton export scheme at the Elba Express Pipeline unit and the Elba Island LNG Terminal.
He added, "We have Canada LNG, where we have a 40% share of a 12 million ton scheme under study there. So we have a growing LNG position in North America, but also I think we have a quite strongly growing gas transport network in North America, providing LNG into vehicles, barges and coastal craft."
Last year, he said that LNG had delivered Shell over $9 billion in revenues in earnings. Gas-to-liquids, he added, would make up a significant part of Shell's future growth.
He commented: "Actually, if you look at Shell today, we produce about as much gas as we do oil, but of all the majors we probably have the largest proportion of gas, and it really is our commitment to this industry and the environmental benefits that we see behind gas that underpin that positioning."
Mr. Brown showed a slide featuring a mosaic of Shell projects, offering an example of a "mini LNG" scheme in Canada.
"There," he said, "we're making about .25 million tons of LNG which we will supply to trucks that will travel on what we call the 'Canadian green corridor.'"
He mentioned Shell's 2.5 million tons of LNG on the Great Lakes and in the Gulf of Mexico. On Elba Island, he said, mini LNG schemes designed for transport would be combined for a 2.5 million ton export scheme.
Tight/shale gas, he noted, had transformed the natural gas industry.
"It's doubled the amount of recoverable gas in the world, transforming the energy outlook of the US."
Shell, he said, had a significant position in both gas and liquid rich shale plays in North America. "We're actually operating in 14 different countries around the world, looking to develop unconventional resources."
Mr. Brown noted the great debate in America as to how much of its domestically produced gas would be used at home and whether any would be available for export.
"This is a big transformation in tight and shale gas, providing more resources for LNG, actually allowing countries around the world to plan on gas in their energy mixes, and providing a richness of opportunity for us," he said of Shell.
Mr. Brown reiterated that Shell had many planned export LNG schemes, and pondered what the impact of LNG would be on supply and demand, and on pricing, moving forward.
He explained, "If you actually add up all the LNG schemes that are being promoted at the moment, you come to something like 200 million tons; today's market is 250. So that's a lot of LNG."
Shell, however, predicted on 60-70 tons actually being developed, because of the sheer cost.
As to whether these new sources of unconventional LNG would create new paradigms in the Far East, Mr. Brown said: "We've seen Henry Hub above $4 now. When you add liquefaction and transport costs - going through the Panama Canal - landed LNG in Tokyo Bay is going to be in the $10-12 range, which fits within the range of conventional supply, so we don't see a major shift in LNG pricing.
"If you look at North America, just 5 years ago there was over 100 million tons that were going to be imported as we thought America was going to be gas short. The tight/shale gas revolution has transformed the picture to this kind of export scenario," he explained.
He said that because the natural gas industry was such a robust one, it had been able to cope with such a major swing of demand to supply, "Because there are many countries around the world that look to LNG for import, whether it be Kuwait, Dubai or Thailand; there are many other new LNG buyers supplementing the traditional core buyers, providing some robustness to the demand picture for LNG."
Of the 17th international "LNG 17" conference, set to take place in Houston on 16-19 April, Andy Brown said, "It's the biggest LNG conference we've ever had, now that the US is the biggest natural gas producer."