Shell Bearish on Gas Exports | Russell T. Rudy Energy LLC
Recent large natural gas discoveries have led to a number of Liquefied Natural Gas (LNG) projects in North America, Australia, East Africa and the eastern Mediterranean. Shell had been a major player in many of these. However, the company now believes that the economics of these projects are in question and is revising its investment strategy accordingly. In an interview with “Rigzone”, Matthias Bichsel, Shell’s Director of Projects and Technology, cited high development costs and low profit margins as factors in this change of direction.
Shell has been involved in a number of LNG projects in Australia where high labor cost and technology problems have prompted the company to exit the Wheatstone LNG project, and re-evaluate its position in the Prelude and Gorgon initiatives as well. The company also abandoned a Gas-to-Liquids project in Louisiana last year.
Construction costs for major gas projects are soaring while gas prices are dropping. European forward gas prices, a major factor in evaluating gas investments, have fallen more than 15% in 2014 and further declines are expected as new discoveries come on line. In Asia, where 70% of LNG is traded, spot prices have fallen more than 35% to their lowest levels since 2012.
Woodside Petroleum recently pulled out of Israel’s Leviathan project and Total has exited Azerbaijan’s Shah Deniz II effort as well. In North America, several LNG export terminals are having trouble attracting investors. High costs, uncertain prices and lack of infrastructure are also undermining initiatives in Tanzania and Mozambique. Asian buyers are hesitant to commit to 20 year contracts when indications are that prices are going to decline further.
Bischel concluded that while the short term prospects for gas exports are discouraging, Shell is committed to natural gas in the long term, “But it will take time”.
To read the article in its entirety, please go to www.rigzone.com/news/article.asp?hpf=1&a_id=133464&utm .
