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Screen Shot 2015-11-04 at 07.57.03Angela Macdonald-Smith: November 4, 2015

Royal Dutch Shell remains unequivocally bullish on prospects for liquefied natural gas despite the current market glut, pointing to several options for new supply projects after its planned $US70 billion ($97 billion) takeover of BG Group and plenty of new markets opening up around the world.

“The fundamentals of this market look as robust now as in the past to us,” chief financial officer Simon Henry told investors overnight Australian time, spelling out Shell’s expectation that global LNG demand will expand at 5 per cent a year to 2030, only modestly lower than the 8 per cent annual growth seen since 2000.

“Shell is investing to develop new LNG demand, through offtake contracts and new LNG regasification projects.” 

The briefing presentations to investors in London placed the Browse floating LNG project in Western Australia firmly in the picture for a potential go-ahead next year, as targeted by operator Woodside Petroleum, despite cutbacks in investment and costs that will total $US11 billion for Shell this year and tightening up of capital allocation amid expectations of continuing weak energy prices.

Chief executive Ben van Beurden named Browse among “some of the big things coming our way” that offer further growth for Shell, although noted that Shell would have to “optimise” both cost and timing.

The Browse project is currently in the preliminary engineering and design phase, with Woodside targeting a final investment decision in the second half of 2016 as long as it can secure LNG sales contracts.

In a further step marking Shell’s emphasis on LNG, Shell appointed its executive vice president of integrated gas, Maarten Wetselaar, to the group executive committee. The integrated gas business, an $US11 billion a year earnings business that is dominated by LNG, will also form a separate division for Shell under a new structure to take effect on January 1.

Shell is targeting an early 2016 completion of its proposed takeover of BG, although regulatory approvals are still outstanding in key markets including Australia and China. The Australian Competition and Consumer Commission is set to release its ruling on the deal, which has sparked major worries about domestic gas supplies among local industrial buyers, on November 19.

Curtis for expansion

Presentation documents released for the briefing name the Arrow venture in Queensland between Shell and PetroChina, the stalled Sunrise LNG venture in Timor-Leste and an expansion of Gorgon LNG in WA among long-term term options forr LNG growth in Shell’s portfolio. 

BG’s longer-term options include an expansion of the Queensland Curtis project, which looks likely to be fed by gas from Arrow should the BG takeover go ahead.

The wide array of LNG growth options will however be narrowed down, with Mr van Beurden noting that “only the most attractive and affordable investments” will go ahead.

He said Shell was looking for low break-even projects, certainly less than $US70 a barrel, and with opportunities nearer to $US50 a barrel.

Mr Henry pointed to the potential for new LNG sales for Shell.

“We are in advanced discussions for new market access positions in China, Philippines, India and we are exploring options in Myanmar, Vietnam, South Africa and Brazil amongst others,” he said. The world’s total of 30 LNG importing countries is set to grow to 50, he added.

Meanwhile, project and technology director Harry Brekelmans reported “good progress” at the Browse floating LNG project in Australia, which is set to provide cash flow for Shell in 2018.

He said all the modules had now been installed on the huge vessel under construction in a shipyard in South Korea, while seven wells had been drilled to their total depth at the gas field off Australia’s far north-west coast.

Shell reiterated its target for $US30 billion of divestments in the 2016-18 period after the takeover of BG, following on from $US20 billion of asset sales set over 2014-15.

The target would indicate that it is likely to pursue the sale of its remaining stake in Woodside Petroleum in the coming years after two sell-downs since 2010.



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