Shell plc (SHEL) Earnings Call Transcript

Good morning, good afternoon and good evening, everybody, and welcome to the Shell LNG outlook 2024. Thank you all for joining us today and for taking an interest in LNG. My name is Cederic Cremers. I'm Executive Vice President of LNG. And I'm joined here today by Steve Hill, who is our Executive Vice President for Shell Energy, which includes our organization for LNG marketing and trading. Before I get into the detail of -- just make sure we can get the next slide here. Perfect, I think we got it now. Before we go into the details of the outlook, just wanted to share a cautionary note here. The legal text that you see on the screen here is basically because we'll be making forward-looking statements here today. So please take note of this text. In addition, just a reminder that what we'll be sharing here today is basically third-party independent data to which we've also added Shell analysis. So it's really talking about the LNG market in general and not about Shell specifically in terms of the trends and the projections that we'll be talking about here today. So today, we'll be going through three parts of the LNG outlook. So first of all, I'll talk a little bit about basically what trends we see in the energy transition and which policy trends we see and what impact they will have on gas and more specifically, LNG demand. Then Steve will look at 2023 and look at how the market stabilized after 2022 as well as share some of the observations of what we expect will come next in the market in the years ahead. So Section 1, I really want to talk about the role of gas and LNG as a reliable and flexible solution for energy and as the world decarbonizes, how that role will grow and particularly how it will grow in industry, in buildings and emerging Asia. So if we look at the outlook for the global gas market, and what we really see is a tale of two markets. On the one hand, what you see here is a number of the OECD markets, whether it's Europe or Japan, which have already peaked in terms of total gas demand in the previous decade. But at the same time, we see significant portions of the world, whether it's Asia, Africa and Latin America, which combined are actually 80% of the world population, where we don't expect the gas demand to peak until in the 2040s. And of course, these are also the key regions that are actually growing LNG demand where we see LNG demand grow in the years ahead. And so because of that, we also see LNG demand not peaking till the 2040s and possibly even beyond the date that gas demand will peak. As you see in the middle chart, you see that particularly the gas demand is going to be coming from the nonpower sectors, and also, on the right-hand side, we see that out of each of the natural gas sections that particularly LNG will be growing the fastest. And a little bit after 2040, we actually see LNG overtaking pipeline imports and having a larger share of the global gas market. So let's go first to the main engine, Asia. Fundamentals, of course, are strong in Asia, increase in population, economic growth and also an increase in the per capita GDP, all driving across Asia. I think if we look at this chart here in terms of where we see the natural gas demand growth in China and in India, we see it particularly coming from industry and from buildings. But in Southeast Asia, we also see it coming from power. Markets that have traditionally relied on domestic gas production, and we see their LNG stepping in to offset declining natural gas production domestically as that declines and these fields go all plateau then LNG steps in to fill the gap. Within this, we all see that, particularly as I mentioned earlier, that LNG is going to play a key role. And one of the realities is, is that the majority of Asia simply does not have access to pipeline imports most places other than China don't have that option. So again, on the right-hand side, you really see that the key growth is coming from LNG in that market. So let's take each of those in turn and start with industry. What we're seeing maybe globally right now is that only 20% of primary energy demand is met by electricity. If you look at the total demand for industry worldwide, it's about 40% of global energy demand. And currently, only about 1/4 of that is met by electricity and a percentage that is not expected to increase rapidly for the industry sectors. So what -- so if we really want to be serious about decarbonizing, if the world wants to move forward in energy transition, then it must tackle decarbonization in ways other than electrification. The example that we have up here is the Chinese steel sector. And you see the total emissions from the Chinese steel sector there at the top. And that is actually only the steel sector, not total industry in China. You see that it's larger, than Japan than the emissions of all of Japan. And it's larger than the combined emissions from the top 3 countries in Europe, being Germany, U.K. and Turkey. Also you can see that it's larger than global aviation and almost the same size if we take the global aviation market and international shipping together. And if you look on the right-hand side of this chart, it's actually put together by industry experts around what might be the ways in which China seeks to decarbonize that steel sector and how it can therefore, meet the combined goals of peaking coal usage by 2030 as well as China's net zero ambition by 2060. And looking at what the options are, it's predicting about 1/3 of that to come from coal to gas switching and about 1/3 of it coming from energy-efficient and electrification, which are both supported by gas as well. So it's clear from this that we see a huge role for gas to play in terms of helping to decarbonize industry. And this is also for reasons beyond just simply meeting those energy transition goals. It is also for economic reasons. And in the center of this chart, you can basically see the total exports in 2022 of products that were exported from China to the European Union, and that would, in future be subject to the carbon border adjustment and additional tariffs that come along with that. It's also beyond that, that we see that policy and also being driven by investment and financing so on the -- looking at the financing that bank such as the Asian Development Bank and the Asian Infrastructure Investment Bank are providing to a number of areas, including, importantly, the build-out of gas infrastructure. If you look at that period of 2016 to 2023 that we show here, 1/3 of investment that the Asia Infrastructure investment bank supported was into gas infrastructure and really building out the gas infrastructure for the expected demand growth. On the right-hand side, you see another really important factor that's linked to the emissions reduction and perhaps in the near term, even more -- even a bigger driver in China, which is improving air quality. This is something that was driven for a number of years in the Beijing area with increased investments making in terms of doubling the size of the gas grid and therefore, reducing the amount of the demand for coal and increasing the demand for gas. And importantly, if you look at the dot there, you can see the number of days that were considered unhealthy in a given year. You can see that in 2014, at the start of that journey, more than 180 years -- sorry, more than 180 days a year. So about half the year were unhealthy days and that's moved to less than 40 in 2022, so huge improvement in air quality in Beijing that's come along with this coal-to-gas switching as well. Next, I want to look a little bit about buildings and particularly the role that gas plays in meeting heating energy demand. The example that we've used here is the U.K. About 85% of the homes in the U.K. rely on gas to provide for cooking, for heating and for their hot water. And probably one of the things we want you to take away from the chart on the left here is that first of all, the total energy demand that buildings have in terms of through gas is actually double the total electricity demand in the U.K. And not only can you see it from the chart that it's double in terms of its total scale, but it's also a lot more variable in terms of from month to month and how much -- how that demand plays out in -- over time. So of course, heat pumps is seen as one of the key ways and one of the preferred ways perhaps to decarbonize heating in buildings. But if you look at the number of installations that are required in terms of heat pumps year-by-year and how much that needs to increase, if you look then also in terms of what's needed to basically in terms of the grids and ensuring that the grids are sufficiently stable to handle that increased demand. And then in addition, if we want that power to be renewable, the amount of capacity that needs to be built out not only to meet the average, but to meet the peaks in electricity demand that will come along with that electrification. That's a really tall order. This is a journey that I think these countries are on. But I think it's important to recognize that whilst that is happening, that gas continues to play an extremely important role in providing heating for these kind of markets. And on the right-hand side, you can see that this is not just playing out in the U.K. We've just given a couple of other examples of markets there in terms of China, the EU and the U.S.A. and how -- and we have the same things happening there and how they comparatively are in terms of size to the U.K. So gas will continue to play in our view, a critical role in meeting heating demand for buildings. And then lastly, maybe looking a little bit at emerging Asia. So as I said earlier, globally, we really see the growth in gas demand and in LNG coming from the nonpower sector, but there's a few key markets where actually power would be playing a key role as well. And here, I particularly want to cast your eye to the Southeast Asia on the right-hand side of this chart, where actually the main decarbonization thrust in these markets is going to be the switch from coal to renewables. And -- but we do see that gas will continue to play an important role, a complementary role to those renewables in terms of providing stability and flexibility in the grid. What you see is that the prediction actually is that the share of gas in the electricity and power sectors there is going to remain relatively stable. Of course, that's happening in a growing overall market and a growing demand. And importantly, something that Steve will touch on later, again, is that in these countries, we see domestic gas production reducing. So as that share stays the same, LNG stepping in to fill that gap. It's very much what we've seen happening in Europe as well. And so maybe here a transition to Europe. And one of the questions perhaps is, does gas still have a role to play particularly in markets where we already have a high renewable penetration. Two examples that we have here on the one hand left-hand side, we have Spain. And on the right-hand side, we have the Netherlands. Spain is a market where about 50% of electricity generation capacity is being -- the currently installed capacity is wind and solar. And in the Netherlands is actually the second highest solar per capita installed, so relatively mature, both in terms of renewables penetration. And what you see in both on the left-hand side, we have basically a chart with the hourly rates. And on the right-hand side of the Netherlands, the daily rates. And in both of them, you see that as wind and solar generation goes down, the gas steps into to fill that gap and provides both as the flexibility and the stability that the grid needs. So continues to really play a complementary role also supporting the uptake and the consistency of renewables in these markets. One other market that we wanted to touch on briefly is the marine sector. And an important role that LNG is also playing in helping to decarbonize the marine sector. We now have about 1,000 vessels both in terms of operation as well as on order that are LNG fueled. And as you see from the pie chart there, if you look at the order book for 2025, about 25% of new vessels were LNG fueled. So what we also see is that about 79% of those vessels are basically built with low methane slip technology, so 2-stroke engines. So this is quite an important market that we see growing in the next years. As you can see from the middle chart, we expect that this market could grow to 10 million tonnes per annum by the end of the decade. Working together with energy efficiency technologies in terms of how the vessels operate, we believe that this can have a really important role in reducing the emissions in the marine sector. It's also important to consider that as these new vessels go in order, it's not necessarily a lock in forever in terms of LNG, but it also provides the platform from continuing down that journey of decarbonization with being able to switch out to Bio-LNG or synthetic fuels in future. Now all of this, of course, it is extremely important that we continue to focus on decarbonizing the production of gas and LNG, both today and in the future. And on this slide, you see a number of ways that the market is pursuing that. And I think we need to pursue all of these in parallel in order to find in future the right solutions to have a more decarbonized energy system. Let me just touch on a few. First of all, maybe carbon compensated LNG. Of course, the type of credits that have been used have been under scrutiny a lot in terms of carbon compensation. And therefore, I think it's really important that we've had a new industry collaboration in terms of measurement, reporting and verification. So MRV being led under the GIIGNL basically an important development to make sure that there's consistency between buyers and sellers about the type of credits and the quality of those credits that are being used for carbon compensated LNG. And I think as I mentioned earlier, you have bio-LNG and synthetic gases that can be used as drop-in not only like I just mentioned in the Marine sector, but also in other utilizations. And of course, that will have the huge advantage of them not needing to change out and make the large investment in change in infrastructure, downstream at the customers as well. And then lastly, we also see that carbon capture and storage will be playing an important role in helping to decarbonize the gas value chain. As an example, if CCS is added to an existing liquefaction plant, there is the opportunity to basically take up to 80% of the emissions of that liquefaction plant and offset those by storing them underground. So I think also a great opportunity and things that, as I mentioned earlier, all these things we need to pursue in order to have the right outcomes in the future. And lastly, I just also wanted to -- something that's an important passion for me, I wanted to say a little bit about methane emissions and the absolute critical role, particularly in the near term in this decade in terms of focusing on reducing methane emissions and getting to that near zero and I think this is an area where that's important across the gas value chain and has really been getting a lot of momentum. I think starting with COP26, where the global methane pledge was made and over 150 countries now signed up to that global methane pledge covering also more than 80% of the LNG importing countries. That's been followed up more recently at COP28 with the oil and gas decarbonization charter and also the World Bank methane and flaring fund, which is intended to help those countries and companies that are made perhaps earlier on the methane reduction journey, help them with the experience and knowledge, but also the funding to get on to that journey. The other one I want to touch on is in the middle of this slide. And this is all about, again, MRV about measurement and reporting and verification. And OGMP 2.0, which I consider absolutely the gold standard in that space. and seeing that now over 120 companies, which cover more than 80% of the LNG flows have been -- have signed up to that. So really, I think, very positive developments in terms of ensuring that we focus on decarbonizing the gas value chain and the LNG chain moving forward. So that's it for Section 1. I'll hand over to Steve now to take us into what happened in 2023. Steve, over to you.

Thanks, Cederic, and good afternoon, everybody. Good morning, America. It's the eighth time now that we've had the pleasure to tell the story of what's happening in the LNG market. And despite doing it so often, there's always plenty to talk about. In fact, I think this is the longest presentation we've ever subjected you to. So I'll get on and start selling the rest of the story. But it's great to start the 2023 review with this slide, which shows the loading of the 1,000th cargo from Shell's QC LNG project in Australia, a great achievement for the team down there. So this slide focuses on the two key offsetting factors that have allowed the global gas market, the global LNG market to balance in 2023. Historically, when we do these presentations, we tell a very simple story. Energy demand grows, gas grows faster than energy overall and LNG grows faster than gas overall. We've just been through a period of tremendous turmoil in international gas markets. Firstly, with COVID and then secondly, with the Ukraine-Russia situation and the implications on Russian pipeline gas into Europe. And the first chart shows a comparison of the world today versus 2019 before those challenges hit the market. And what you can see is the LNG market has grown, not substantially, but it's grown just over 10% in that period. But the pipeline gas market, the international pipeline market has shrunk by a larger extent. So over the last few years, the global gas market has shrunk overall, and that creates a structural tightness in the market. At the same time, the short-term -- changes that affect short-term demand in 2023 have predominantly been quite negative for gas demand. We've just been through the third mild winter in a row, we've seen strong nuclear power generation in the key nuclear countries in France, Japan and Korea. And the Chinese economic recovery has been relatively modest. And some of the gas consuming industries have suffered particularly, whether that's exports led industries or industries that supply the construction sector like glass, galasso, ceramics or cement so we've seen weak demand in China and mild temperatures. So what we've seen is a long-term tight markets offset by short-term weak factors and the two have allowed the market to balance. And the chart on the right shows the price reductions we've seen over the last couple of years because of that. The price in 2023 was much lower than '22 or at the end of '21 but on a historic basis, is still being higher than typical price levels for spot LNG and what we've actually seen is at the end of the '22, '23 year, when it became clear that we would get through that winter, okay, we saw a reduction in prices. And we've seen a similar thing recently as it's become clear that we're going to get through this winter as an industry, okay. But while things are relatively balanced and seem relatively comfortable today, the market is still quite fragile. The first chart here shows that on a historic basis, we've seen very, very high gas inventories in Europe throughout the last year. And that's been a combination of tight supply and demand destruction related to the higher prices we've seen. But we pointed out three events that happened during the second half of the year. At a time when European inventories were very, very high and the market should feel quite comfortable, the three events related to Norwegian maintenance, the prospects of strikes in Australian LNG production and then obviously, the start of the Israeli-Hamas conflict. Three events that didn't actually cause any material disruption to the global gas markets, but they created quite an impact in actually the trading patterns and the spot prices we saw. So those three events all led to price increases on the day of between 10% and 15% and record trading volumes for TTF in Europe. So we have a structurally tight market that's been balanced by near-term market weakness, but where we see fragility and volatility continuing. So looking at the actual LNG supply situation last year, probably the biggest news was the U.S. became the world's largest LNG producer after only starting to export in 2016, so very rapid growth there. As Europe had high inventories, we saw an increased volume of U.S. volume to Asia over the year, but then different trade patterns. First of all, we saw a lot of volumes going through the Panama Canal but low water levels there forced the diversion of shipping through the Suez Canal. And then at the end of the year, the Israel-Hamas conflict and the situation in the Red Sea caused a movement away from the Red Sea and another route. So strong trade from the U.S. to Asia, but different trading patterns to get there. So if we look at the demand side of the equation, the importing countries we saw, again, a strong recovery from Asia in 2023 after reducing demand in '22 when cargoes were pulled away to Europe to replace lost Russian pipeline gas. So Mainland China, we saw the largest increase, the fastest growth in LNG markets in 2023, but we also saw very strong growth from Thailand and new markets emerging, important new markets like the Philippines and Vietnam. Within Europe, we saw a shifting pattern, countries with new import facilities, particularly Germany, Netherlands and also Italy, saw a big increase in imports, and that was offset by a reduction in places like the United Kingdom and France as new import terminals allowed the European gas market and LNG markets to connect more efficiently. So we'll look at Europe in a bit more detail. And the first chart here shows the challenges that we've seen in the European gas demand over the last year, driven by the high prices, the supply constraints and the demand destruction. And what you see is European gas demand falling by about 10%, but all forms of gas demand fell, power, buildings, industry and all forms of supply whether it's domestic production, LNG, pipelines, from Russia or North Africa or Central Asia, everything declined. And then looking at the second and third charts, more specifically on power and on industry. In power, the gas demand was relatively low, driven again by pricing, but also increased growth in renewables. And an industry weak start to the year, but towards the end of the year as prices started to moderate, we saw a recovery of gas demand in industry in Europe. When we look at China, we see the absolute opposite story. Gas demand in China grew by 8%, but all forms of gas demand grew, whether that was transport, industry, buildings and power and all forms of supply, domestic production pipeline imports and LNG increased. And that caused the LNG demand in China to increase back to about 72 million tonnes in '23 which pretty much match China's long-term contract position. So China wasn't a big player in the spot market last year. But what you see is despite that strong growth we saw in 2023, imports in China were still 10% below the level they were 2 years ago. And as you'll see later on in the story, we're forecasting strong growth in Chinese LNG demand going forward. In Japan, we see a different story. Japan is a country that is seeing a long-term decline in its gas demand, and therefore, it's LNG demand. As Cederic mentioned, gas demand in China peaked sorry, in Japan peaked in the last decade, and therefore, we're seeing lower LNG imports. But LNG still plays a very important role in providing flexibility in Japan's gas demand, whether there's an unprecedented increase or reduction in demand driven by heatwaves in this example, LNG provides the flexibility to allow global gas markets and specific LNG markets to balance. So looking forward into 2024, what do we expect to happen in the coming year. The industry is expected to grow. The forecast range from between 7 million and 20 million tonnes of growth over the coming year, not a massive amount of growth compared to what we expect to see in the subsequent years. The largest amount of that growth is expected to go into Asia and particularly China. This forecast growth in China from about 4 million to 7 million tonnes over 2024, we saw in January alone, an increase of 2 million tonnes imports into China compared to January 2023. And and potentially a reduction in LNG into Europe compared to last year. What's probably most interesting on this chart is the right-hand chart, which shows the massive growth we're seeing in import capacity for LNG. In 2024, we expect over 100 million tonnes of new import capacity to come online compared to that 7 million to 20 million tonnes of growth in supply, created a lot more flexibility. And this growth in import capacity comes from many different markets, but particularly Europe, in Germany, in Greece, in Italy, and also in China, where we expect to see 10 new LNG terminals start up this year. So looking a little bit further ahead, we are coming towards the end of a period of relatively limited growth in supply between 2020 and 2023, we only saw 40 million tonnes of new supply. This year, it might be slightly higher. But clearly, in '25, '26, '27, there is a lot more new supply to come on from the large volumes of LNG that's under construction in the United States and Qatar. There's quite a bit of uncertainty over the timing of the new supply driven by projects -- specific project challenges and delays driven by the geopolitical situation. We have a project in Russia that's suffering from sanctions. We have the project in Mozambique, where the construction has been halted because of the security situation. But it's clear that a lot of new LNG will come to the market over the rest of the decade. But that's not a new thing. The LNG industry has had a strong track record of absorbing significant increases in supply in short periods of time. And this will be the third step up in supply we have seen this century. Between 2009 and 2011, we saw a massive growth when [indiscernible] first started building its LNG mega trains. Most of that volume was absorbed by Japan post the Fukushima incident. Between 2017 and 2019, we saw a big wave of supply from Australia and the United States. Most of that volume is absorbed by the rapid growth in Chinese energy demand at the time. And then again, between '25 and '27 or a bit later, we will see a third big step-up in supply. In absolute quantity, the biggest that we'll have seen in this century. But in terms of percentage of the market is actually smaller than what we've seen in the last -- the other two examples I described. But I think the good news is there is a lot of latent demand for LNG. There's a lot of demand that has been constrained over the last few years because of this tight market situation I've described because LNG has been pulled into Europe to replace rising pipeline gas, a lot of new markets that want to import LNG have been delayed, many of which have already developed the import infrastructure, Vietnam, Ghana, Philippines, Bahrain and others that are keen to import LNG and need LNGs like Australia, Srilanka, South Africa. We also see strong demand growth in the shipping sector, the LNG bunkering business that Cederic described. Just as a shell data point, in 2022, despite unfavorable LNG prices compared to alternative fuels, we did more bunkerings than we've done in all the previous years put together. And we are a significant player in that market with about a 30% market share. But the -- as we go into 2024, we now have a situation where LNG is actually very competitive compared to the oil alternatives. And then that has impacts not just in the LNG bunkering market but other markets. India, we're already seeing an increase in demand because of the lower prices and there's various markets, which have the fuel switching optionality in Europe and in developing economies to buy more LNG at the expense of liquid fuels. So stepping back and looking at the overall supply-demand balance between now and 2040. We show this first chart every year. The red area is the amount of LNG that's in production today. That declines over time as gas fields get depleted and projects come to the end of their natural life. We have a very significant amount of LNG under construction at the moment, particularly in Qatar and the United States. But the amount of LNG that's expected to be produced for the rest of this decade is within the range of central demand forecasts from the key industry commentators. And then in the next decade, the industry clearly needs a lot more LNG supply to meet the continued growth in demand that's forecast. The center chart shows a comparison between these forecasts and some of the Net Zero scenarios. And the Net Zero scenarios have lower demand projections, but I think it's important to recognize that they still show LNG demand growing for at least the rest of this decade. After that, they may increase at a slower rate, plateau or start to decline. But under all these scenarios, LNG continues to play a material part of the global energy market for quite some time to come. And we look specifically on where this demand growth is coming from, and it's very much China for the rest of this decade and then South and Southeast Asia for the reasons Cederic described earlier than into the 2030s. So Europe is very important to the LNG market in a way that it wasn't traditionally. It was always considered to be a flexible market that could absorb LNG, if it wasn't needed elsewhere. Now because of the Russian gas situation, Europe needs LNG. And Europe has actually started to sign long-term LNG contracts over the last couple of years. But the long-term contracts that it signed don't fill the hole. So the hole exists because even though gas demand is declining in Europe, the domestic production and pipeline imports are declining at a similar or even faster rate. And therefore, the gap between demand and domestic or pipeline supply is pretty constant for the rest of the decade. The import -- the long-term contracts that Europe has signed will start to fill that hole, but we still see a structural short of 50 million to 70 million tonnes a year for the rest of the decade of more LNG that Europe needs to secure on a long term or on a spot basis. The other thing to note is that a lot of these contracts Europe has purchased are contracts where the LNG might not necessarily end up in Europe. They're either FOB purchases whether cargoes could go anywhere or deliver purchases where the seller has diversion rights to send to the cargoes to other markets. So China is the market that we are most bullish about this decade. And one of the reasons for that is the massive amount of new gas infrastructure that is coming on stream at the moment. We hear a lot about the amount of coal-fired power generation being built in China or the amount of renewable generation being built in China, and both are true. But there's also a massive amount of gas-fired generation being built in China. And what the first chart here shows is the amount of new gas-fired generation that will come online in the next 2 years in China is more than all the gas-fired generation that exists in the U.K. today. In terms of regas capacity, it's even more extreme. The amount of new regas capacity that will come on stream in China this year is basically the same as all the amounts of regas capacity that has been built in India ever on a cumulative basis. And then we see a similar thing in gas storage as well, where China is building as much storage in the year, almost as Japan has in total. And this drives a very strong outlook for our forecast for gas demand in China. And as Cederic mentioned before, this gas demand is, in many ways, driven by industry and buildings and not so much the power sector. And this strong growth in gas demand will pull lots of new supply. It will encourage domestic production. It will enable more pipeline imports. But LNG will actually disproportionately provide a bigger share of that. And then obviously, there's a lot of questions that are raised by the size of China's market and its growth and its role in international markets. People talk about how vulnerable is China to the U.S. supply or how vulnerable is the U.S. to Chinese demand. When you actually look at the amount of U.S. LNG that's been contracted into China, it's less than 5% of the Chinese gas market. The LNG and supply from Russia to China is higher, but it's still less than 15% of Chinese gas demand. So China has good diversification from different supply sources as well as different ways of delivering gas. Now four other countries in Asia that we think are particularly important are the Southeast Asian countries in Bangladesh, Thailand, Philippines and Vietnam. Whereas China and India, we see strong demand growth, predominantly driven by power and buildings, these are markets that are really driven by power. So first of all, you have a very rapidly growing power sector in these markets. And secondly, these are markets which have a very established gas infrastructure. These are markets that were typically supplied with domestic gas. And as the domestic gas goes into decline, we see very strong expected growth in LNG imports to offset the lost domestic production and to supply that growth in power generation. So four very significant growth markets, but that do require a further investment in regas capacity to meet their potential. So now moving on to the U.S. or North America, more generally as a supply source North America is a -- has very quickly become the world's leading LNG supplier with production of close to 100 million tonnes today. And it has roughly the same amount of export capacity under construction. So it will grow to about 200 million tonnes of exports by the end of the decade, which will make it the supplier of about 30% of global LNG demand, about 5% of global gas demand. And where LNG will become about 20% of North American gas demand. It will become an equivalent to the power sector or buildings or industry in North America as a gas consumer. But this then introduces North American risk to the global LNG industry. Most of the gas that sits in North America is in very specific locations. The LNG industry is very concentrated on the Gulf Coast in East Texas and Louisiana. And therefore, you have to find a way to connect these gas resources to those export projects, and that introduces a new set of risks to the global LNG industry. This presentation isn't really about Shell's business, but one thing I really do like about our position today in North America is the diversification. We are a big buyer from the U.S. Gulf Coast, but we're also the off-taker from the [ El brine ] project on the East Coast. We will be the largest offtake from the LNG Canada project in Canada's West Coast and also an off-taker from the Mexico Pacific project in Mexico's West Coast. So we have a good diversification of our North American supply position for a geographically and on price indexations. So I've talked quite a bit about the different markets, the different supply sources in the industry. I want to talk now a bit about the commercial structure of the industry because we often get asked "Won't LNG commoditized, won't all LNG be sold on the spot market". And actually, that's not a trend that we're seeing. The first chart here shows that we have quite a stable situation where about 70% of LNG is sold under long-term contracts and 30% of LNG is sold and spot contracts. And both of those commercial structures serve the purpose. Long-term contracts provide security of supply. They provide pricing predictability. And it's also the commercial structure that enables the financing and the development of new supply projects that allow the industry to grow. Whereas the spot markets clearly provides flexibility and for people to match their supply and demand in the short term. So we continue to see a growing industry where new suppliers coming to the market, underpinned by long-term contracts. The two dominant sources of growth in the industry are cut up in North America, which have very, very different commercial structures. And therefore, the LNG market continues to have these three independent commercial structures, long-term contracts indexed to the U.S. gas market, long-term contracts indexed to the oil price and a swap commoditized market. It's not normal for a commodity to have three different pricing structures that can exist, but it's what works for the LNG industry, and it works well for Shell. And in terms of why will that continue? It's because buyers value long-term contracts and continue to sign long-term contracts. The first chart here shows that over the last 3 years, buyers have signed 200 million tonnes of LNG under long-term contracts, which is an unprecedented level of commitment to that form of commercial structure. And therefore, this really gives us confidence that the long-term contracts are here to stay. We're not in a market that is rapidly commoditizing. And as you see, those long-term contracts are being signed by buyers in different regions in China and Europe, portfolio players like ourselves and elsewhere for different terms. And -- as a consequence of that, we have a significant volume of long-term contracts that will be in effect after 2040 and now even after 2050. So that's the presentation. If you missed any of it, we summarize it all on this slide, but I'll stop now and welcome any questions. As I've said, the presentation is on the LNG industry. So our expectation is that the questions are on the industry, and we'll talk about Shell specifically in other times and places, but I welcome your questions there. Thank you.

Our first caller is Biraj Borkhataria from RBC Capital Markets.

I don't know if you can hear the question. We can't in the room.

We'll go to the next question and try Biraj again later.

Our next call is Irene Himona from Societe Generale.

Can you hear me?

We can. We're relieved that we can so that's good.

Yes, I had a question on Slide 27, which is the sort of demand supply balance. And you show demand begins to exceed supply by about 2032. 5 years ago, in your 2019 outlook, that going towards 2025. So clearly, supply has grown materially faster than demand. But my question really concerns this potential ban on new U.S. export -- LNG export projects. Do you think such a ban would be relevant to the time frame you show on that Slide 27? Or is it beyond that period? In other words, does it impact the -- I think it's yellow under construction capacity?

Yes. So the ban does not impact the yellow. So the LNG projects that are under construction will continue to be under construction. Then you have some projects that are approved but not under construction and you have some projects that are not yet approved and not under construction, and it's the latter of those two that are affected by the ban. So I think the impact of the ban will be very much driven by the duration of the ban. We have about 100 million tonnes of export projects in the U.S. that are under construction at the moment -- sorry, in North America that are under construction at the moment, and we have other projects that are approved and can be sanctioned. So the ban doesn't cause the LNG market to be short in this near-term period. But ultimately, there would be an expectation that the U.S. or North America would continue to grow as an LNG exporter. And therefore, at some point in time, the ban would have an impact us, buyers are forced to look elsewhere and there's not as many options where else to look as people would like. So I think in summary, it's a bad thing in principle. In practice, it's probably okay if it's a year or so, but if it was a long-term ban, then it would have quite an impact on the market.

Our next call is Giacomo Romeo from Jefferies.

Yes. I think you show a quite accelerated demand growth from 2026, if I read your chart correctly and just wondering, you talked about the fact that there is a lot of latent demand. And I'm just wondering how quickly do you think this can actually come back as prices are -- get to stay at a lower level and just asking that because some of that has this policy related. And just wondering sort of what kind of assumptions is behind this focus of demand growing -- demand growth accelerating after 2025.

Yes. Thanks for the question, Giacomo. I think the profile of demand growth that we're showing is very much driven by supply availability, demand would be much higher today if the supply was available at a reasonable price. What we've been through is a period where supply is constrained because Europe has been pulling LNG away from markets where those volumes may have traditionally gone. And as this new supply comes on stream from '25, '26, '27, the countries that we show here will have the ability to then go and buy LNG. So how quickly will that happen? It will be driven by, first of all, the supply availability and also the pricing levels. I mentioned China and India, two key markets that are well-established markets but also price-sensitive markets. We've seen very, very strong growth recently because of the more affordable levels that we're seeing in the market today. So some of the new markets we're showing here are markets that we need to develop their own new import infrastructure to import. So there's a bit of a time lag there. But in many of these cases, the import infrastructure has been developed and it's ready to go, and it's just waiting for available, affordable volumes.

Our next caller is Alastair Syme from Citi.

Steve, kind of related to questions to that last one, a lot of people talk about the sort of a term -- the industrialization of Europe. And I guess, if I look at your chart on the European demand, particularly industrial demand, have been recovered a bit at the back end of last year, but considering prices fell so much. It hasn't recovered much. So how do you think about what -- I guess the question is what price do you think your customers can afford? You need to find a point to which your customers can buy your product?

Yes, absolutely. And I can't quote numbers. It will be different prices for different customers. Europe has been through quite a structural change as you've seen. They lost the equivalent of about 100 million tonnes of LNG of Russian pipeline gas. And it had to pull every lever it could to rebalance. And about half of it got rebalanced by more LNG and the other half was everything else, fuel switching, growth in renewables, growth in pipeline gas. But demand destruction was quite significant part of how Europe rebalanced, and that's why we've seen this 10% demand reduction this year on top of the previous year. What you actually see in the chart this year though, that if you look at the reduction in demand in '23, very little of it was in the industrial sector, much more of it was in the power sector in the building sector, and that was driven by a combination of price, but also weather by -- also by increased renewable growth. So the industry demand has bottomed out, and we are starting to see the demand recover. I think the other thing that's important is confidence in prices remaining at an affordable level because what a lot of buyers are quite reluctant to do is to switch back to gas if they think in a month's time or 2 months' time, then gas is going to be expensive again. So fortunately, Europe, you have different pricing mechanisms and hedging mechanisms that allow people to lock in that pricing that they're seeing at the moment. But this will be driven by the affordability of gas and the confidence in the remaining affordability of gas.

Steve, can I follow up? Obviously, you meet a lot of policy makers. Do you sense an urgency in Europe or a concern on this issue about affordability? Is it higher on the agenda? You think it should be?

I'm afraid I'm going to have to give you the energy trilemma answer, Alastair. I think 2 years ago, 3 years ago, all you'd hear about was decarbonization. And now I think you do get much more balanced conversations between security supply, affordability and decarbonization. It's clear that a lot of politicians and policymakers would like to go back to being able to focus solely on decarbonization, but I think there's a recognition that, that's not going to happen overnight that there's a transition that needs to happen before that's a realistic option again.

Yes, I think that's clear, yes.

Thank you, Alastair.

Our next caller is Biraj Borkhataria from RBC Capital Markets.

Can you hear me this time?

Yes.

We hear you, Biraj.