Shell says cargo deferments are short-term issue in long-term sector and hopes for Russian LNG project

Tuesday, 07 July 2020
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LNG Journal editor

Royal Dutch Shell’s head of Russian operations said the company was open to taking part in new liquefied natural gas projects in Russia with natural gas company Novatek and units of Gazprom, its partner in the Sakhalin LNG project.

Shell outlined its Russian strategy in a wide-ranging interview given by Shell Russia’s Chairman Cederic Cremers to the Russian news agency Tass.

Cancellations

Cremers said the Anglo-Dutch company had suffered LNG cargo cancellations because of the oil price plunge and Covid-19 but pointed out that the LNG business was a long-term one with joint venture liquefaction plants enjoying a lifespan of 25 years or more.

“Yes, we had some of our LNG customers who had some deferments of specific cargoes just in the short term and it was due to full storage tanks or full inventories,” he stated.

“However, the overall number of such cargoes is relatively small, very manageable for us operationally

and within the normal bandwidths,” explained the Shell executive.

Shell, whose annual LNG sales amount to around 75 million tonnes, had not been forced to reduce production because of any of the current challenges in the energy market.

“We can remarket these cargoes relatively effectively in the market,” said Cremers, whose company is a joint venture partner with Gazprom and two Japanese trading houses in the Russian Far East Sakhalin II LNG plant.

“Sakhalin-II has a very privileged position in the Asia-Pacific market being very close to the key markets: Japan, Korea, China, Taiwan,” said Cremers, who is on the supervisory board of the plant’s operating company Sakhalin Energy.

“In addition, it has always been a very strong and reliable partner for its customers. It has a very strong reputation in the market. We continue to be effectively placing many of the cargoes that we produce, including additional spot cargoes, into the market,” said the Shell executive.

“We have seen that the economic slowdown reduced both gas and LNG demand across the globe. This is a large drop compared with the projections that we had just a few months ago,” he explained.

“What is probably important is that it will take a little bit of time for the demand to come back to the previous projections that we had in terms of demand, but we do see continued growth,” he said.

“This is not about fundamental demand destruction, but rather it is about a slower pace of growth in the near term,” added Cremers.

Nevertheless, he said that Shell believed that fundamentals of the LNG market had not changed.

“We do believe that over the next 10 to 20 years an annual average growth rate of 4 percent per year is realistic,” he stated.

“It will remain the fastest growing sector in the hydrocarbon space. That means that if you look at this annual rate between now and 2040 the market will double in LNG,” said Cremers.

He noted that Shell also believed that in the broader scheme of things and including the energy transition, natural gas would be replacing the current sources of coal or diesel that are used to generate power in many places around the world.

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