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Royal Dutch Shell plc (ADR) to Increase Exposure to LNG Market

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By Staff WriterJun 15, 2016

Royal Dutch Shell plc (ADR) (NYSE:RDS.A) plans to further strengthen its foothold in the liquefied natural gas (LNG) market, as according to Reuters, the company will sign the Baltic LNG project deal with Russian energy giant, Gazprom in the coming days. The multi-billion dollar deal with London-based BG Group has already increased the company’s exposure to the LNG segment.

According to news sources, Shell CEO, Ben van Beurden, will sign the deal at the International Economic Forum in St. Petersburg. Russian President, Vladimir Putin, is also expected to attend the meeting.

Baltic LNG Project

Shell expects to acquire 25–35% stake in the Baltic LNG project. It is scheduled to come online in 2018 and is expected to serve consumers in the Kaliningrad Region.

The Baltic LNG plant is being built near the Ust-Luga seaport. The plant is expected to have an annual production capacity of around 10 million tons of LNG during the first few years of operations. Gazprom plans to increase the annual production to 20 million tons of LNG by the end of 2021.

When the project was first announced three years back, Gazprom PAO (ADR) (OTCMKTS:OGZPY) said it would seek to attract investors for it. The Russian company plans to maintain around 49% stake in the project. Shell’s investment would help it accumulate finances for the project and speed up the construction process.

Shell: Exposure to The LNG Market

Shell sees huge future potential in the LNG market as it expects the current global LNG demand to increase from 240 million tons per year to 430 million tons per year in 2025. The company believes that although LNG prices are currently trading at their multi-year low, they would bounce back in the long-run.

The Anglo-Dutch energy company believes LNG will occupy a large share in the global energy mix in the long-term. The company expects the LNG segment to grow 5% annually.

Shell considers LNG segment as its cash engine; a stable business that yields strong free cash flow and high return for the oil major. The company expects this segment to help finance its dividends and improve balance sheet position.

The energy giant is currently involved in the early stages of the development of LNG value chain. It is exploring the gas fields, liquefying gas, and transporting it to the customers. The BG merger has already strengthened its foothold in the LNG market, especially in Australia.

Not only Shell, but other energy giants including Chevron Corporation (NYSE:CVX) are also looking to increase exposure to the LNG market. Chevron has invested billions of dollars in Gorgon and Wheatstone LNG projects, while BP is seeking opportunities in the segment.

Editing by Hamza Khalil; Graphics by Hussain Akber

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