Doubts arise among investors over Shell's optimistic LNG projection, hinting at unstable ground
In the world of energy, predictions and projections are a constant. Recently, Shell, the Anglo-Dutch energy giant, has announced a significant increase in its forecast for global LNG demand. The company expects a 60% rise in demand by 2040, up from a 50% rise predicted last year.
This forecast is notably more optimistic than the International Energy Agency's (IEA) outlook, which projects a potential oversupply by the end of this decade due to rapidly expanding liquefaction capacity and softening demand in key markets.
Shell's projection is based on anticipated economic growth in Asia, decarbonization efforts in heavy industry and transport, and technological factors such as artificial intelligence driving demand. The IEA, on the other hand, estimates that under current policies, LNG trade might only reach around 480 million tons per year by 2050.
The difference between the two forecasts hinges on assumptions about market dynamics. Shell assumes robust sustained demand growth, while the IEA emphasizes supply expansions and price sensitivity that could lead to oversupply by 2030.
The IEA's caution about oversupply carries substantial credibility, given the rapidly increasing liquefaction capacity coming online by 2028. This capacity could potentially exceed 666 million tons per year, outstripping the IEA's demand forecast for 2050.
Not everyone is convinced by Shell's forecast, however. Some of the company's investors, including Brunel, Greater Manchester Pension Fund, Merseyside Pension Fund, and the Australasian Centre for Corporate Responsibility (ACCR), have questioned the accuracy of Shell's LNG predictions and filed a resolution demanding greater transparency.
They argue that Shell's LNG demand outlook has not been materially revised in response to major changes in the global energy market, such as the rapid increase in renewable energy capacity. Furthermore, Shell currently has more uncontracted LNG than any other independent oil and gas company.
In a recent statement, Fatih Birol, IEA executive director, predicted a "huge wave" of LNG to hit the market in 2026, with Qatar and the US being the main contributors to this surge. The IEA's prediction of an oversupply by the end of the decade adds another layer of complexity to the LNG market outlook.
As we move towards 2025, when Shell's AGM is scheduled to be held in London, the debate about the future of LNG demand and supply will undoubtedly continue. The accuracy of each forecast depends on evolving policy landscapes, price developments, and regional consumption patterns. For now, the IEA’s prediction seems more conservative and aligned with current market capacity trends.
Finance plays a crucial role in the assessment of Shell's future LNG demand predictions, as some investors, such as Brunel, Greater Manchester Pension Fund, Merseyside Pension Fund, and the Australasian Centre for Corporate Responsibility (ACCR), have questioned the accuracy of Shell's projections and called for greater transparency. Energy, specifically the expansion of renewable energy capacity, could significantly impact the validity of Shell's forecasts, and the IEA's more conservative outlook on LNG demand appears more aligned with current market capacity trends in both the energy industry and finance.
