America possesses an abundance of low-cost natural gas. With a surplus of gas, energy companies are venturing into the development of liquefied natural gas (LNG) export terminals to cater to the thriving overseas demand. According to energy titan Shell (NYSE: SHEL), global LNG demand is anticipated to surge by over 50% by 2040.
This projection holds significant promise for companies currently engaged in the development of LNG export capacity in the U.S., despite a recent temporary hold on new approvals by the Biden Administration. However, Shell’s forecasts strongly imply that the global economy will necessitate more U.S. LNG in the future.
Assessing Shell’s Projected Growth
Shell recently unveiled its LNG outlook for 2024. The oil and gas company reported that global LNG trade hit 404 million tonnes last year, denoting a 2% increase from 2022. It anticipates a steady upsurge in global LNG demand over the next couple of decades, expected to exceed 600 million tonnes by 2040.
A primary driver is the anticipated shift of China and other countries in South Asia from coal to natural gas for powering their economies. Additionally, Shell anticipates that Southeast Asian nations will adopt LNG to fuel their economic growth engines.
This outlook underscores the global necessity for increased LNG capacity:
Image source: Shell.
The data highlights the impending requirement for additional LNG export capacity later this decade to meet the anticipated surge in demand.
Projects on the Horizon
Shell’s forecast portends well for companies involved in LNG projects. Two prominent developers seeking to leverage the growing LNG demand are Tellurian (NYSEMKT: TELL) and Energy Transfer (NYSE: ET).
Tellurian is currently advancing the Driftwood LNG project, with the initial phase featuring two liquefaction plants capable of producing 11 million tonnes of LNG annually. Despite commencing construction, the company faces a substantial hurdle due to insufficient funding, requiring partners to finance at least half of the project’s estimated $14.5 billion cost. It is also striving to secure buyers for the produced LNG, ideally seeking a strategic partner to serve as an investor and customer of the facility.
Energy Transfer has spent over a decade converting a former LNG import facility into an export one. Its Lake Charles LNG project is poised to export 16.5 million metric tons of LNG per year and is in the process of securing equity partners for development. The company is reportedly in discussions to involve Australia’s Woodside Energy as an equity partner and customer. Unlike Tellurian’s Driftwood LNG, Energy Transfer has already secured several customers for Lake Charles, including Shell.
However, having made progress in commercializing the project, Energy Transfer faces a significant obstacle. The Department of Energy rejected an extension of its export license, necessitating a fresh approval, which is currently on hold due to the Biden administration’s temporary suspension of new LNG project approvals.
Both companies have the liberty of time to obtain the approvals and partners necessary for their projects, given that global demand will not peak until later in this decade. However, they must maintain momentum to avoid being surpassed by rival projects.
Continued Surge in LNG Demand
Shell’s prognostication of a 50% surge in LNG demand over the next two decades, outstripping present supply and upcoming capacity until the end of this decade, suggests an imperative need for the energy industry to establish additional LNG export projects in the coming years. This augurs well for Tellurian and Energy Transfer, provided they surmount existing obstacles to develop their projects, potentially fueling substantial shareholder value in the years ahead.
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Matt DiLallo holds positions in Energy Transfer and Woodside Energy Group. The Motley Fool does not hold any positions in the stocks mentioned and upholds a disclosure policy.
The expressed views and opinions in this article represent the author’s perspective and may not necessarily align with those of Nasdaq, Inc.
