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According to projections published in the U.S. Energy Information Administration’s (EIA) Annual Energy Outlook 2020 (AEO2020), total dry natural gas production in the United States will continue to increase until 2050 in most of the AEO2020 cases, primarily to support growing U.S. exports of natural gas to global markets. The United States began exporting more natural gas than it imports on an annual basis in 2017, driven by increased liquefied natural gas (LNG) exports, increased pipeline exports to Mexico, and reduced imports from Canada. In most of the AEO2020 cases, net natural gas exports continue to increase through 2050, and most of the increase is in the near term.

The AEO2020 Reference case represents EIA’s best assessment of how U.S. and world energy markets will operate through 2050, assuming no significant changes in energy policy occur. Side cases show the effects of changing model assumptions: the High and Low Oil Price cases simulate international conditions that could drive crude oil prices higher or lower, and the High and Low Oil and Gas Supply cases vary production costs and resource recoverability within the United States.

U.S. dry natural gas production, AEO2020 reference case

Source: U.S. Energy Information Administration, Annual Energy Outlook 2020

EIA expects dry natural gas production to total 34 trillion cubic feet (Tcf) in 2019 once the final data is in. In the AEO2020 Reference case, EIA projects that U.S. dry natural gas production will reach 45 Tcf by 2050. Production growth results largely from continued development of tight and shale resources in the East, Gulf Coast, and Southwest regions, which more than offsets production declines in other regions. Dry natural gas production from these three regions accounted for 68% of total U.S. dry natural gas production in 2019 and, in the Reference case, 78% of dry natural gas production in 2050.

Most of the increase in dry natural gas production is coming from natural gas formations such as the Marcellus and Utica in the East region and the Haynesville in the Gulf Coast region. A smaller but still significant portion of the growth is from natural gas production in oil formations (also known as associated gas), especially in the Permian Basin in the Southwest region.

U.S. natural gas trade, aeo2020 reference case

Source: U.S. Energy Information Administration, Annual Energy Outlook 2020

In the Reference case, both U.S. natural gas exports by pipeline and U.S. LNG exports continue to grow through 2030. LNG exports account for most of the export growth because more LNG export facilities are becoming operational and more projects are under construction. In the Reference case, EIA projects that LNG exports will almost triple, from 1.7 Tcf in 2019 to 5.8 Tcf in 2030, the equivalent of nearly 16 billion cubic feet per day (Bcf/d). LNG exports remain at this level through 2050 as U.S.-sourced LNG becomes less competitive in world markets and as more countries become global LNG suppliers.

U.S. LNG exports are more competitive when oil prices are high (as in the High Oil Price case) and U.S. natural gas prices are low (as in the High Oil and Gas Supply case) because of pricing structures that link Brent crude oil prices to LNG prices in many world markets. In the High Oil Price case, U.S. natural gas net exports reach nearly 13 Tcf by the late 2030s, most of which is LNG. Conversely, in the Low Oil Price case and Low Oil and Gas Supply case, U.S. LNG is less competitive globally and remains lower than 5 Tcf per year through 2050.

By comparison, pipeline trade of U.S. natural gas is less sensitive to changes in assumptions about domestic natural gas supply and world oil prices. Pipeline trade of natural gas is highest in the High Oil and Gas Supply case because low domestic natural gas prices reduce U.S. natural gas imports from Canada.

U.S. natural gas net trade

Source: U.S. Energy Information Administration, Annual Energy Outlook 2020

production supply AEO Annual Energy Outlook natural gas EIA exports imports LNG Liquefied Natural Gas
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Royal Dutch Shell Poised To Become Just Shell

On 10 December 2021, if all goes to plan Royal Dutch Shell will become just Shell. The energy supermajor will move its headquarters from The Hague in The Netherlands to London, UK. At least three-quarters of the company’s shareholders must vote in favour of the change at the upcoming general meeting, which has been sold by Shell as a means of simplifying its corporate structure and better return value to shareholders, as well as be ‘better positioned to seize opportunities and play a leading role in the energy transition’. In doing so, it will no longer meet Dutch conditions for ‘royal’ designation, dropping a moniker that has defined the company through decades of evolution since 1907.

But why this and why now?

There is a complex web of reasons why, some internal and some external but the ultimate reason boils down to improving growth sustainability. Royal Dutch Shell was born through the merger of Shell Transport and Trading Company (based in the UK) and Royal Dutch (based in The Netherlands) in 1907, with both companies engaging in exploration activities ranging from seashells to crude oil. Unified across international borders, Royal Dutch Shell emerged as Europe’s answer to John D Rockefeller’s Standard Oil empire, as the race to exploit oil (and later natural gas) reserves spilled out over the world. Along the way, Royal Dutch Shell chalked up a number of achievements including establishing the iconic Brent field in the North Sea to striking the first commercial oil in Nigeria. Unlike Standard Oil which was dissolved into 34 smaller companies in 1911, Royal Dutch Shell remained intact, operating as two entities until 2005, when they were finally combined in a dual-nationality structure: incorporated in the UK, but residing in the Netherlands. This managed to satisfy the national claims both countries make on the supermajor, second only to ExxonMobil in revenue and profits but proved to be costly to maintain. In 2020, fellow Anglo-Dutch conglomerate Unilever also ditched its dual structure, opting to be based fully out of the City of London. In that sense, Shell is following the direction of the wind, as forces in its (soon to be former) home country turn sour.

There is a specific grievance that Royal Dutch Shell has with the Dutch government, the 15% dividend tax collected for Dutch-domiciled companies. It is the reason why Unilever abandoned Rotterdam and is now the reason why Shell is abandoning The Hague. And this point is particularly existentialist for Shell, since its share prices has been battered in recent years following the industry downturn since 2015, the global pandemic and being in the crosshairs of climate change activists as an emblem of why the world’s average temperatures are going haywire. The latter has already caused the largest Dutch state pension fund ABP to stop investing in fossil fuels, thereby divesting itself of Royal Dutch Shell. This was largely a symbolic move, but as religious figures will know, symbols themselves carry much power. To combat this, Shell has done two things. First, it has positioned itself to be at the forefront of energy transition, announcing ambitious emissions reductions plans in line with its European counterparts to become carbon neutral by 2050. Second, it is looking to bump up its dividend payouts after slashing them through the depths of the Covid-19 pandemic and accelerating share buybacks to remain the bluest of blue-chip stocks. But then, earlier this year, a Dutch court ruled that Shell’s emissions targets were ‘not ambitious enough’, ordering a stricter aim within a tighter timeframe. And the 15% dividend tax remains – even though Prime Minister Mark Rutte’s coalition government has been attempting to scrap it, with (it is presumed) some lobbying from Royal Dutch Shell and Unilever.

As simplistic it is to think that Shell is leaving for London believes the citizens of the Netherlands has turned its back on the company, the ultimate reason was the dividend tax. Reportedly, CEO Ben van Buerden called up Mark Rutte on Sunday informing him of the planned move. Rutte’s reaction, it is said was of dismay. And he embarked on a last-ditch effort to persuade Royal Dutch Shell to change its mind, by immediately lobbying his government’s coalition partners to back an abolition of the dividend tax. The reaction was perhaps not what he expected, with left-wing and green parties calling Shell’s threat ‘blackmail’. With democracy drawing a line, Shell decided to walk; or at least present an exit plan endorsed by its Board to be voted by shareholders. Many in the Netherlands see Shell’s exit and the loss of the moniker Royal Dutch – as a blow to national pride, especially since the country has been basking in the glow of expanded reputation as a result of post-Brexit migration of financial activities to Amsterdam from London. The UK, on the other hand, sees Shell’s decision and Unilever’s – as an endorsement of the country’s post-Brexit potential.

The move, if passed and in its initial stages, will be mainly structural, transferring the tax residence of Shell to London. Just ten top executives including van Buerden and CFO Jessica Uhl will be making the move to London. Three major arms – Projects and Technology, Global Upstream and Integrated Gas and Renewable Energies – will remain in The Hague. As will Shell’s massive physical reach on Dutch soil: the huge integrated refinery in Pernis, the biofuels hub in Rotterdam, the country’s first offshore wind farm and the mammoth Porthos carbon capture project that will funnel emissions from Rotterdam to be stored in empty North Sea gas fields. And Shell’s troubles with activists will still continue. British climate change activists are as, if not more aggressive as their Dutch counterpart, this being the country where Extinction Rebellion was born. Perhaps more of a threat is activist investor Third Point, which recently acquired a chunk of Shell shares and has been advocating splitting the company into two – a legacy business for fossil fuels and a futures-focused business for renewables.

So Shell’s business remains, even though its address has changed. In the grand scheme of things, never mind the small matter of Dutch national pride – Royal Dutch Shell’s roadmap to remain an investment icon and a major driver of energy transition will continue in its current form. This is a quibble about money or rather, tax – that will have little to no impact on Shell’s operations or on its ambitions. Royal Dutch Shell is poised to become just Shell. Different name and a different house, but the same contents. Unless, of course, Queen Elizabeth II decides to provide royal assent, in which case, Shell might one day become Royal British Shell.

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