Royal Dutch Shell Plc will become a dominant player in the liquefied natural gas market through the $70 billion acquisition of BG Group Plc, amassing twice the sales of its nearest competitors.
The combined company will sell about 50 million tons of LNG a year by the end of the decade, Shell Chief Financial Officer Simon Henry said Wednesday after a press briefing in London. Exxon Mobil Corp. and Chevron Corp. will each sell less than 25 million tons, he said.
The energy industry’s biggest deal in a decade will hand Shell natural-gas assets in Australia and the U.S., as well as a foothold in Tanzania. The Anglo-Dutch company, which helped pioneer the process of liquefying gas for tanker shipment decades ago, is betting LNG will play an increasing role in emerging economies seeking alternatives to dirtier coal.
“We become the largest private LNG company in the world, and by a factor of two,” Henry said. With more LNG projects on the horizon, “we’ll have a leading position in the market for many years to come.”
The acquisition will increase Shell’s LNG sales about 32 percent immediately and 80 percent by 2018, Chief Executive Officer Ben van Beurden said at the briefing. The combined company will account for about 15 percent of the world’s traded LNG, Henry said.
Gas is emerging as a preferred fuel around the world because it is cleaner than coal and oil. China, the world’s biggest energy user, is shutting coal-fired power stations and developing its gas industry while India, the world’s third-biggest emitter, is seeking more imports as local output fails to meet demand.
LNG is gas chilled to a liquid, reducing it to 600th of its volume, for transporting by ship to destinations not connected by pipeline. This has made the fuel a globally traded commodity.
“BG has good positions in the market for both production and selling liquefied gas,” Quirijn Mulder, an analyst at ING Bank NV, said in a report. “It helps Shell to refocus its portfolio into another direction: more towards deep water and gas, both activities with the highest growth outlook.”
After acquiring BG, Shell will have LNG liquefaction plants in Australia for ease of supply to China and in the U.S. and Canada for supplying to Europe. A plant in Tanzania in the future may become a supplier to Asia because of its proximity.
The share of crude oil in Shell’s total production has declined over the years as the company snapped up shale-gas reserves in the U.S. and increased its focus on gas-rich countries such as Australia. By the end of last year, its reserves were 47 percent gas compared with 78 percent at BG, according to data compiled by Bloomberg.
The deal gives Shell access to BG’s Australian project to produce 8.5 million tons of LNG a year from coal-seam gas. The first unit at the site is already producing and a second will start later this year, BG Chairman Andrew Gould said on a conference call on Wednesday.
The acquisition also gives Shell assets in Tanzania, where some of the world’s biggest gas discoveries have been made. BG has a 60 percent interest in three blocks off the East African country and may help develop an LNG plant there to export the chilled gas to Asia and Europe.
In the LNG market “size really matters and the size underlines delivery potential,” Van Beurden said. “There’s now a long list of supply points, a long list of delivery points and it gives us large optionalities. This is about scale.”