* LNG supply soared over past year, excess cargoes sent to
Europe
* Shell sees supply growth easing from mid-2020
* Expects impact of coronavirus on Chinese demand to be
temporary
*
(Updates throughout with outlook for 2020, quotes from webcast)
By Ekaterina Kravtsova and Nina Chestney
LONDON, Feb 20 (Reuters) - Asia will be able to absorb most
of the growth in liquefied natural gas (LNG) supply from the
second half of 2020, with Europe ceasing to be a balancing
market, Royal Dutch Shell said on Thursday.
Excess cargoes have been sent to Europe in the past year as
global LNG supply has been soaring, in particular from projects
in the United States and Australia.
Mild weather and the coronavirus outbreak in China helped
reduce LNG demand in Asia this winter and LNG prices in Asia
have dropped to record lows, while European gas prices are
wallowing at more than a 10-year low.
"Over the last five quarters, we've seen particularly strong
supply growth and Europe having to act as the balancing market
to absorb those volumes," Steve Hill, EVP Shell Energy, said in
a webcast after Shell presented its LNG outlook.
"But as you look forward from 2020, particularly from the
middle of 2020, you see a material reduction in the growth of
supply and you see Europe no longer being called upon to provide
the role as the balancing markets, and Asia absorbing most of
the supply growth going forward."
After almost 30 million tonnes of new liquefaction capacity
was added in 2019, the growth in new supply is expected to slow
down this year to below 20 million tonnes.
European LNG imports soared by more than 30 million tonnes
to around 85 million tonnes in 2019 compared to 2018 as demand
fell in Japan and South Korea and rose more slowly than
previously expected in China, Refinitiv data showed.
Gas was also more competitive to burn than coal in European
power generation.
"While we see weak market conditions today due to record new
supply coming in, two successive mild winters and the
coronavirus situation, we expect equilibrium to return," Maarten
Wetselaar, integrated gas and new energies director at Shell,
said.
Shell expects the impact of the coronavirus outbreak in
China to be transitory for the country's demand, but added that
consumption was affected in February, which is likely to extend
into March. It estimated that China's LNG demand will grow by
4-6 million tonnes this year.
Last year, China's LNG imports increased by 14% due to
efforts to improve air quality. LNG imports also grew in
Bangladesh, India and Pakistan, Shell's outlook showed.
Commenting on the possibility of production shut-ins due to
low prices, Shell said that there is a possibility of those in
the United States as export economics "is very marginal."
With multi-year low European gas prices and LNG trading in
the region at deep discounts to those, sellers of some U.S.
cargoes may already see deliveries of U.S. LNG to Europe
unprofitable.
Production can also be reduced in Australia, Egypt and
Malaysia as these countries have options to re-direct gas to
domestic markets, Shell said.
In its 2020 LNG outlook, Shell said Asia is expected to be
the key growth region for LNG in the next 20 years, with South
and Southeast Asia generating more than half of the increased
demand.
Global demand for LNG is expected to double to 700 million
tonnes by 2040, with gas continuing to play a key role in a
lower-carbon energy system. Global LNG demand grew by 12.5% to
359 million tonnes last year.
"The global LNG market continued to evolve in 2019, with
demand increasing for LNG and natural gas in power and non-power
sectors," Wetselaar said.
"Record supply investments will meet people's growing need
for the most flexible and cleanest-burning fossil fuel."
Natural gas emits between 45% and 55% fewer greenhouse gas
emissions and less than one-tenth of the air pollutants of coal
when used to generate electricity.
(Reporting by Nina Chestney, Ekaterina Kravtsova and Shadia
Nasralla; Editing by Jan Harvey and Susan Fenton)
