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Europe Has Short-Term LNG Options: Shell CEO

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Europe will not have to sign long-term contracts for all the LNG it needs to replace Russian gas volumes, according to Shell CEO Ben van Beurden.

Contract negotiations between top European economy Germany — which is working to reduce its heavy reliance on Russian pipeline gas in the wake of the conflict in Ukraine — and LNG giant Qatar are said to have run into difficulties.

Berlin’s reluctance to meet Qatar’s condition that it sign deals of at least 20 years for the LNG, fearing that may put its decarbonization targets at risk, is one of the sticking points, Reuters reported this week.

Bridging the Gap

Asked how the gap between the two sides could be bridged, Van Beurden said that while around 120 million tons of LNG equivalent — some 163 billion cubic meters — in Russian gas imported into Europe last year needed to be replaced somehow, he didn’t think all the LNG for the continent needed to come on long-term contracts.

Even at Shell, the world’s top LNG portfolio player, “we don't have everything signed up on long-term contracts,” he said on an environmental, social and corporate governance (ESG) call with analysts.

Around one-third is signed on short-term contracts — often spot or a few cargoes at a time. “And many of our long-term contracts are 10 years,” the CEO said.

LNG producers won’t be able to commit to investing in new supply if a country in Germany’s situation is looking for only a stopgap arrangement, Van Beurden noted. But portfolio LNG players like Shell are also able to “mix and match” supply and demand, he added.

“And we can just say: 'Fine, we're going to layer in a few relatively short-term contracts because we don't necessarily need that one contract from Germany to underpin a new LNG plant in country — it will just come from our portfolio.'”

German LNG Import Terminals

The CEO’s comments will provide some reassurance to the government in Germany, which currently has no LNG import facilities, underscoring its dependence on Russian volumes.

Utilities RWE and Uniper have, however, optioned four floating storage and regasification units (FSRUs) as a way to help the country wean itself off Russian supplies.

Potential German LNG Import Terminal Locations

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Shell itself in March agreed to book a “substantial part” of capacity in the planned 8 billion cubic meter per year German LNG Terminal, an import terminal at Brunsbuttel near the North Sea, with a binding agreement still under discussion.

The UK-based supermajor will use its portfolio flexibility to weather Europe’s current energy security problems, Van Beurden said, adding that it was “too early to say” how the situation will play out.

“Having engaged with the German government myself quite intensively over the last few weeks, deep down, they realized that as well,” he said. “This is not a one-year problem.”

Topics:
Low-Carbon Policy, Conflict, Gas Demand, LNG Contracts, LNG Demand
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