Insecure predictions: investors express doubts over Shell's optimistic LNG projections
In a bold move, Shell has increased its forecast for global Liquefied Natural Gas (LNG) demand, predicting a 60% rise by 2040. This figure surpasses the previous forecast of a 50% rise, making it more optimistic than the International Energy Agency's (IEA) forecast.
However, not all investors are convinced. Concerns have been raised about the accuracy of Shell's forecast. Some investors, including Brunel, Greater Manchester Pension Fund, and Merseyside Pension Fund, argue that the forecast has not been revised in response to major changes in the global energy market.
One of the primary concerns is the potential for market dynamics and demand softness. LNG demand in key regions such as Asia is highly price-sensitive, with recent drops in imports by major consumers like China and South Asia during price surges. This indicates that demand may not grow as strongly as Shell expects.
Another concern is the oversupply risk. New liquefaction capacity coming online globally, notably from Qatar and North America, could add 193 million tons by 2028. This oversupply raises questions about whether Shell's bullish demand outlook is well-justified, especially when compared to the IEA’s demand projections.
Furthermore, regional consumption trends are expected to continue declining in Japan, South Korea, Europe, and other large markets, which could undermine Shell’s high demand expectations.
The investors also point to the rapid increase in renewable energy capacity as another factor that could impact LNG demand.
The IEA's Global Energy Outlook predicts a "huge wave" of LNG, but also warns of an oversupply by the end of the decade. This makes Shell highly exposed to potential value erosion if LNG prices are lower than anticipated.
The IEA's forecast indicates a 50% increase in available LNG export capacity by the end of 2030. This could lead to a capacity overshoot compared to the IEA’s demand projections, further fuelling investors' skepticism.
In response to these concerns, some investors have filed a resolution alongside the Australasian Centre for Corporate Responsibility (ACCR), demanding greater transparency.
Shell's 2025 AGM is scheduled to take place on 20 May in London, providing an opportunity for investors to voice their concerns directly. It is worth noting that Shell has more uncontracted LNG than any other independent oil and gas company.
In summary, while Shell's optimistic LNG demand forecast is based on expectations of stronger economic growth in Asia, greater LNG adoption in sectors like shipping and transport, and decarbonisation of high-emitting industries, investors remain skeptical due to recent price sensitivity, regional demand declines, and potential global supply glut. These concerns could restrain actual demand growth compared to Shell’s projections.
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