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Shell (SHEL) Eyes Rising LNG Demand in Emerging Asian Economies

Shell plc SHEL, the British energy supermajor, believes that its supply of liquefied natural gas (LNG) from its terminals in Australia should support the increasing demand from the emerging market of Asia. Toward the end of the decade, the South and Southeast Asian markets are anticipated to absorb a part of the rising global LNG supplies. Shell believes that Vietnam, Bangladesh, the Philippines and Thailand will experience significant demand growth and be the focus markets in the future.

In the previous week, Asian spot LNG prices have risen manifold to reach the highest levels since January. The spur in prices can be attributed to extremely high temperatures and relentless heat in the region, increasing the demand for the “super-chilled” fuel. Moreover, the increased emphasis on decarbonization of the energy sector and a decline in domestic production in Asia should fuel the demand for LNG, Shell noted.

In Asia, LNG is expected to contribute significantly to the energy consumption mix in the upcoming years of the decade. A spokesperson from Shell described it as a latent demand, conveying that the demand for natural gas in South Asian markets is bullish, although it is not quite realized yet. An IEEFA article states that Shell had previously released a report, highlighting significant financing barriers in the LNG value chain despite expected demand growth. The increase in natural gas demand in South and Southeast Asia is driven by its use in power generation, but LNG-to-power projects are typically time-consuming due to complex negotiations and development processes.

However, Shell’s strong commitment to the Australian market is due to its internal evaluation of demand prospects in Asia. The British energy major believes that although it is competitively positioned to serve the Asian market, maintaining its supply position is what matters. Shell has highlighted that its highly reliable assets in Australia can help it maintain a competitive position in the supply chain.

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In Australia, Shell’s flagship floating LNG facility, Prelude, returned online following its statutory shutdown. Despite a staggering cost of $12 billion, the LNG facility has suffered from several outages since it began production in June 2019. However, Prelude returned with much higher reliability and improved performance levels. The energy giant stated that there are no statutory shutdowns in the coming year or two, for Prelude. As a result, production volumes in the current year are anticipated to be higher than the previous year. Shell does not have any statutory shutdowns planned until 2026, for the LNG facility.

In conclusion, Shell believes that its LNG portfolio in Australia is well-developed and capable of meeting the growing demand for gas in Asian markets.

Zacks Rank and Key Picks

Currently, SHEL carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the energysector are Archrock Inc. AROC, Hess Midstream Partners LP HESM and Eni SpA E.Archrock presently sports a Zacks Rank #1 (Strong Buy), while Hess Midstream and Eni presently carry a Zacks Rank of #2(Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.

Archrock is an energy infrastructure company based in the United States, with a focus on midstream natural gas compression. It provides natural gas contract compression services and generates stable fee-based revenues.

Hess Midstream LP owns, operates, develops and acquires a wide range of midstream assets, providing services to Hess Corporation and other third-party customers. The partnership has a stable fee-based revenue model secured via long-term commercial contracts. Since Hess Midstream operates through 100% fee-based contracts, it is exposed to minimal commodity price risks.

Eni is a leading global integrated energy company with a prominent focus on liquefied natural gas businesses. As natural gas has a lesser carbon footprint compared with other fossil fuels, it is likely to play an important role in the global energy transition process. Eni’s participation in the natural gas market should allow it to capitalize on the mounting global demand in the future.

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Shell PLC Unsponsored ADR (SHEL) : Free Stock Analysis Report

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