Shell to make natural gas from hydrogen as China dominates supplies

Shell to make natural gas from hydrogen as China dominates supplies

Shell to make natural gas from hydrogen as China dominates supplies, sourceShell is exploring making natural gas from hydrogen to ship to countries around the world amid fears that surging demand in China will leave Europe short of supplies.

The FTSE 100 energy giant outlined plans to begin creating liquefied natural gas (LNG) as it warned that strong demand in China for imports had “come at Europe’s expense”.

A switch from Russian gas since the start of the Ukraine war and rising demand in China post-Covid have caused global demand for LNG to soar in recent years, as countries worldwide scramble for supplies of gas.

In its latest LNG Outlook report, Shell said it now expected demand for LNG to increase by 60pc by 2040, from 407m tonnes last year to as much as 718m tonnes per year.

LNG provides a means of shipping fuel to countries that lack access to pipelines and have limited supplies themselves. China, Japan and the European Union are currently the biggest buyers of LNG worldwide.

Meanwhile, a rebound in demand from China after the pandemic has also seen it boost its own imports of LNG, pushing up prices. European natural gas prices have soared to their highest level in two years as the Continent scrambles to refill its rapidly depleting reserves.

Shell’s plans would see it combine hydrogen, made using solar power, with carbon molecules captured from greenhouse gases in the air.

Carbon molecules would then be used to turn the hydrogen into methane or CH4, which is the same molecule as natural gas. The methane could then be frozen into synthetic LNG.

The proposals mark the first time a major oil company has explored turning hydrogen into LNG.

Shell is currently investing heavily in its own LNG business in order to capitalise on the expected rise in demand.

LNG currently supplies more than a fifth of global energy demand, with the market worth over £100bn per annum and expected to grow around 10pc per year over the next five years.

In the UK, LNG accounted for around a fifth of the country’s natural gas imports in 2024. Pipeline gas from Norway and Britain’s own North Sea assets supplied almost all of the country’s remaining demands.

However, Europe has become increasingly dependent on LNG from the US in the wake of Russia’s invasion of Ukraine as it has pushed to cut its reliance on pipeline gas from the Kremlin.

Shell to make natural gas from hydrogen as China dominates supplies

The US has also invested heavily in LNG infrastructure over the past decade as it has looked for ways to profit on its own supplies of natural gas that have increased sharply owing to the fracking boom.

However, critics warned Shell’s proposals would be unfeasible because of the costs associated with making LNG.

Michael Liebreich, an energy analyst, said:

It’s a complete economic fantasy. The fundamental problem is absurd levels of expense.

He added that the project would be forced to rely on huge taxpayer subsidies, most likely from the US government. These seem increasingly unlikely to be given out under Donald Trump, who has cancelled support for green energy projects since returning to the White House.

Mr Liebreich said:

The economics of synthetic methane can only be made to work by layering subsidies … In the current political climate, I can’t see those multiple subsidies happening.

He said the plans could also see people hit with higher energy bills worldwide, as he suggested Shell’s proposals were likely to be the result of “wishful thinking”.

Tim Bush, an analyst at Pensions and Investment Research Consultants, said the plans could be a way to “prolong the life of LNG infrastructure when demand for fossil LNG has gone down”.

He said the size of the facility that would be required to capture enough carbon for large scale LNG production would be “enormous, with a massive carbon footprint in its own right”.

A Shell spokesman said:

Global trade of LNG is forecast to rise by around 60pc by 2040 to meet growing demand for gas around the world.

“In the longer term, existing gas and LNG infrastructure could be used for lower carbon gases including bio-LNG and liquefied synthetic gas.”

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Shell to make natural gas from hydrogen as China dominates supplies, source

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