SHEL Shell Plc

By Jaime Llinares Taboada

Global demand for liquefied natural gas is expected to outpace supply until 2025, and Royal Dutch Shell PLC and TotalEnergies SE are best placed to benefit from this tight market, Jefferies says in a report.

LNG consumption should grow at a compound annual rate of 5% through 2030, and at 2% during the 2030s, Jefferies estimates. This will be driven by new Asian importing countries, continued high growth in Chinese demand and new transport fuel applications.

"We see gas as a key transition fuel for developing economies with India and China being the biggest growth drivers, more than offsetting demand decline in Europe, Japan and North America," Jefferies analysts say.

Combined with limited project start-ups in 2021 and 2022, this should keep the market tight and spot LNG prices at an elevated level in the medium term, the bank says. This will particularly favor companies such as Shell and Total, which have a relatively higher degree of exposure to spot pricing--as opposed to contracted sales which remain under pressure by Qatar's aggressive marketing.

Shell has the best LNG business among the big energy companies, according to Jefferies. The Anglo-Dutch group has the largest production capacity portfolio and is expected to increase it by at least 7 million tons a year by the middle of the decade. Moreover, Shell has a low break-even point and the highest proportion of spot LNG sales of all integrated oil companies. It also has the greatest number of LNG carriers and holds equity stakes in three regasification facilities.

TotalEnergies is seen as a close second. However, the French company lags behind Shell in terms of LNG shipping capacity and ESG credentials, according to Jefferies.

From 2025 onward, however, this should change, as a wave of projects will be commissioned and new volumes will enter the market, Jefferies says. Those include Shell's LNG Canada, Exxon Mobil Corp.'s Golden Pass, Gazprom PJSC's Baltic LNG, and Qatar Petroleum's North Field East.

As a result, the U.S. bank expects the market to become looser from 2025 until the end of the decade, which will weigh on spot prices for the super-chilled gas.

Write to Jaime Llinares Taboada at jaime.llinares@wsj.com; @JaimeLlinaresT

(END) Dow Jones Newswires

July 06, 2021 08:53 ET (12:53 GMT)

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