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Oil, Gas Activity in U.S. Holds Steady

Oil, Gas Activity in U.S. Holds Steady

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Shell Sees LNG Replacing Coal in Asia

UK energy supermajor Shell has projected that liquefied natural gas (LNG) will replace coal as a leading driver of Chinese and other Asian economies.

According to the firm’s LNG Outlook published today, demand will rise by 50 percent by 2040 and global LNG trade will grow to around 625-685m tonnes per year, up from the 404m tonnes traded in 2023.

“China is likely to dominate LNG demand growth this decade as its industry seeks to cut carbon emissions by switching from coal to gas,” said Steve Hill, executive vice president for Shell Energy.

“With China’s coal-based steel sector accounting for more emissions than the total emissions of the UK, Germany and Turkey combined, gas has an essential role to play in tackling one of the world’s biggest sources of carbon emissions and local air pollution.”    

The firm also noted that declining domestic gas production in parts of South Asia and Southeast Asia could drive a surge in demand for LNG and its required infrastructure.

Shell is coming off big wins in the LNG space in the fourth quarter of its blockbuster 2023 earnings period, with the sector’s gains offsetting impairment charges in the chemicals division.

“Shell’s LNG division continues to help support cash generation and the company also appears to have operational momentum,” RBC Capital Markets analyst Biraj Borkhataria said in a recent note.

In an interview last week, the company’s chief executive Wael Sawan also recently hit out at U.S. President Joe Biden for what he deemed constraining behaviour on the sector.

“I don’t think the recent announcement by the administration necessarily impacts, in the short or medium term, the supply of LNG, but I do think it erodes confidence in the longer term,” Wael Sawan said of President Biden’s decision to pause new deals on LNG exports from the U.S.

Another narrative running underneath Shell’s LNG operations and long-term outlook is its ongoing dispute with U.S. LNG exporter Venture Global.

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Shell and fellow UK petrol giant BP argue that they are contractually owed huge LNG cargoes from the self-styled ‘disruptor’ of hydrocarbons, which for its own part claims the contracts are not yet valid.

Shell has previously alleged Venture Global’s actions are a “wilful breach of contract” – a long-term LNG agreement -and have allowed the company to reap an $18bn (£14.2bn) windfall because of a surge in gas prices following Russia’s 2022 invasion of Ukraine.

By Ciy AM

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  • Mamdouh Salameh on February 14 2024 said:
    While global demand for LNG will rise by 50% by 2040 and global LNG trade will grow to an estimated 625-685 million ton (mt) per year from 404 mt traded in 2023 and while China is likely to dominate LNG demand growth, I very much doubt that LNG will replace coal in China's and other Asian economies. The reasons are:

    1- Coal-generated-electricity remains the cheapest in the world.

    2- Countries with sizeable proven reserves of coal like, China, India, other Asian countries and even Germany aren't going to keep such a highly valuable economic resource underground. While they will continue to increasingly use more renewables for electricity generation as a way of accelerating de-carbonization, they will never stop using coal.

    3- For China, its indigenous coal reserves are a guarantee of energy security and a cheap energy source for its manufacturing sector. The same applies to Germany, India and to some extent the United States.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

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