Big oil companies are preparing for a decline in profits from liquefied natural gas (LNG) trade as prices are expected to stabilize after a surge over the past three years. This forecast, reported by the Financial Times, is based on insights from analysts.
Among the companies most affected, analysts highlighted Shell, BP, TotalEnergies, Exxon, and Chevron. These companies have large LNG trading operations that have greatly benefited from the price volatility since February 2022.
“The volatility has decreased in recent months and is starting the year lower than before. Last year was lower than 2023, which was lower than 2022,” an LNG trader told the Financial Times. David Hewitt, a consultant at Hewitt Energy Perspectives, explained, “LNG traders care about volatility. In a more stable market, regardless of how skilled the traders are, it becomes harder to make large profits.”
Hewitt also pointed out that LNG plays a crucial role in the earnings of international oil companies, especially European ones.
LNG has been a key contributor to Big Oil’s profits in recent years due to the price fluctuations. According to Citi’s calculations, Shell is expected to generate 21% of its cash flow from LNG this year. Chevron will get 18%, TotalEnergies 14%, and Exxon 12%. BP will see the lowest cash flow from LNG at 10%.
The situation could worsen in the coming years, as some analysts predict an LNG surplus by the end of the decade. Rystad Energy forecasts this surplus could appear as soon as 2027. ING estimates that the surplus will be substantial, with capacity expansions from the U.S. and Qatar raising global export capacity by over 45% by 2030, reaching over 950 billion cubic meters.
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