The proposal seeks clarity for Shell investors as to how the company arrives at the levels of Liquified Natural Gas (LNG) demand in its LNG Outlook, and how it reconciles this demand with its broader strategy, including its climate commitments. This in turn should enable investors to better appraise the material risks associated with the LNG portfolio, and how the company is managing those risks.

Investors have cause to seek enhanced transparency from the company about its LNG Outlook because:

Shell is building its strategy around an anticipated level of demand which is higher than all scenarios put out by the International Energy Agency (IEA) and appears to have misinterpreted independent analysis in substantiating its demand projections.
Shell’s LNG demand outlook has not been materially revised in response to major changes in the global energy market.
Shell has more uncontracted LNG than any other independent oil and gas company, making it highly exposed to value erosion should prices be lower than planned for.
The proposal seeks enhanced disclosure related to the company’s LNG business as it is central to the company’s growth strategy and a major source of revenue. LNG is projected to account for 30% of Shell’s upstream hydrocarbon production in 2030. Shell plans to ‘grow [its] world-leading LNG business by an expected 20-30% by 2030’[1] and grow liquefaction capacity by 25 to 30% over this period.

It is currently not clear how to assess alignment between the company’s LNG strategy and its commitment to reach net zero emissions by 2050.[2] Shell does not explain the temperature outcome associated with its LNG Outlook, nor how it would meet its net zero commitments if the high levels of LNG demand do materialise, without relying on implausibly high levels of negative emissions technologies.[3]

Shell’s LNG Outlook 2024 sees higher demand than all IEA scenarios
LNG demand in Shell’s LNG Outlook 2024 is higher than under all scenarios published by the IEA. By 2040, Shell’s LNG outlook is 19% higher than the IEA’s Stated Policies Scenario (STEPS) – a scenario which assumes no further climate policies are implemented. It is 92% above the Announced Pledges Scenario (APS), which assumes all proposed climate targets are met, but no more are introduced; and 301% higher than the Net Zero Emissions by 2050 scenario (NZE), which is aligned to 1.5°C.

It is unclear why Shell’s LNG demand assumptions are so much higher than the IEA. Investors require more transparency from Shell in relation to its demand assumptions, due to the significant financial implications for shareholders should this demand not materialise.

Shell’s LNG demand outlook has not responded to major changes in the global energy market
Since 2021, the IEA has made significant revisions to its LNG demand forecasts because of changes in global energy markets. Shell’s demand outlook has been much less responsive to these changes, with a reduction in the 2040 demand outlook of 33 Mtpa (-5%), which is equal to around one quarter of the change in the IEA APS over that period. This inertia in assumptions raises questions about the oversight of its LNG strategy.

Under the APS, the IEA has reduced the 2040 demand forecast by 131 Mtpa (-28%), to reflect changes in energy markets over the past four years. Russia’s invasion of Ukraine and the subsequent increase in LNG prices has accelerated global investments in renewables. Europe has seen a significant reduction in gas demand, which will continue as countries accelerate the deployment of renewables and heat pumps. Emerging markets such as Pakistan and Bangladesh were priced out of the market during the energy crisis, causing widespread energy outages[4]. They responded by moving away from reliance on LNG imports, which had ‘acquired a reputation as a costly and unreliable fuel’[5], instead pursuing independent energy security while reducing overall costs through fixed energy stocks such as solar.

Plans by regulators for expanding energy supply have consequently shifted. In Vietnam, a country which Shell references as a source of growing LNG demand in the power sector, the Power Development Plan projection for LNG-to-power in 2050 has been reduced by 50% - from 55.8GW in 2021 to 27.9GW in 2023.

Shell has more uncontracted LNG than any other independent oil and gas company
According to data from Rystad Energy, Shell has more uncontracted LNG than any other independent oil and gas company, with over 1bn tonnes of uncontracted LNG between 2024 and 2050. Therefore, its risk exposure to LNG prices is greater than any other company. There is expected to be a surplus of LNG supply in the second half of the 2020s, due to a large amount of LNG liquefaction capacity coming online[6]. Lower prices will impact the company’s revenue and profitability, with every $1 /MMBtu reduction in the gas price eroding $13 billion in NPV[7]. Given Shell’s exposure and bullish assumptions, it is incumbent on the company to substantiate its position.

The current Outlook lacks the granularity necessary for investors to assess the risks associated with Shell’s strategy, especially considering the substantial misalignment with all IEA scenarios. Investors have reasonable grounds to seek further information about the assumptions underpinning the LNG Outlook and the degree to which the Outlook is consistent with strategy, including climate commitments.