Global energy behemoth Shell just released analysis about the global liquefied natural gas (LNG) market.
This is important for Australia because LNG is a major export. It’s also relevant for the earnings and outlook of ASX stocks like Santos (ASX:STO) and Woodside Energy Group (ASX:WDS).
Energy was the worst-performing sector in June for the ASX 200.
The Australian Financial Review quoted Hugh Dive, Atlas Funds Management chief investment officer, as saying:
“Markets have reacted as though Iran has turned into a peaceful and responsibly governed country.”
In other words, the immediate crisis may be contained, but the longer-term ramifications are with us for much longer.
We can see this in the fact that traffic through the Strait of Hormuz is still nowhere back to pre-war levels:
What does Shell tell us about the global LNG market?
The biggest exporter is the US. The biggest importer is — probably no surprise — China. China’s imports of LNG are up 250% over the last 10 years.
South and Southeast Asia’s economic growth is also driving demand. Shell says:
“Forecasts show that those regions will account for around 40% of global LNG imports by 2050 to meet rapidly growing demand for energy with lower emissions than coal. In more mature Asian markets such as Japan, data centres are emerging as a new source of power demand.”
This year certainly hasn’t gone as anyone expected.
The Strait of Hormuz closure in March was, by far, the biggest energy disruption in history to date. Roughly 20% of LNG supply is from the Middle East.
The world can thank the energy boom in the US for putting a buffer in place.
US energy exports to Asia and Europe are balancing the market in a time of supply constraint:
Shell notes:
“Although spot prices of LNG in Asia increased to more than US$20 ($29) per million British thermal units (MMBtu) at the peak of the Middle East crisis, they remained significantly lower than in 2022 when gas supplies were disrupted following the Russian invasion of Ukraine, reflecting the greater resilience of the LNG market now.
“With long-term supply agreements accounting for around two-thirds of total LNG trade, the average price that buyers paid for LNG in May was around US$11–12 per MMBtu, compared to US$7–11 in January before the conflict began.”
The other important factor now is that, pre-war, the LNG market was expected to go into surplus.
Not now.
This potentially sets up the global market for a further supply shortfall based on current projections.
Shell describes the overall dynamic behind LNG as one of countries prioritising flexible and reliable energy security. Australia can certainly help fulfil this role.
Write to Callum Newman at Mining.com.au
Images: Shell, Santos & BreakWave Advisors
