Editorial comment
After years of speculation, Shell has finally decided that market conditions are ripe to launch a bid to acquire BG Group in what would be the second biggest oil and gas deal in history (behind the ExxonMobil merger in 1998).
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The Economist described the potential tie-up, valued at £47 billion, as a 鈥渧ote for gas鈥�1, and it certainly seems to serve as evidence that Shell is placing LNG at the forefront of its plans for the future. Aside from the other big prize of the proposed acquisition 鈥� deepwater assets in Brazil 鈥� BG鈥檚 portfolio of LNG projects will significantly strengthen Shell鈥檚 leading position in the LNG market. Tom Ellacott, Vice President of Corporate Analysis for Wood Mackenzie, believes that the takeover will offer Shell 鈥渦nrivalled flexibility and exposure to virtually every major LNG supply source and market globally, which means significant scope for portfolio optimisation.鈥�2 Ellacott holds that a Shell-BG combined entity would control sales of approximately 44 million tpy of LNG by 2018, making it the largest LNG seller in the world.
In addition to BG鈥檚 enormous Queensland Curtis LNG (QCLNG) project in Australia, which loaded its first cargo at the end of 2014, Shell will also gain access to reserves in East Africa (Tanzania) and the US Gulf Coast (Lake Charles LNG and offtake agreements with Cheniere Energy鈥檚 Sabine Pass liquefaction plant). BG鈥檚 proposed Prince Rupert LNG project in British Columbia also offers Shell the option to expand its presence in Canada.
For The Economist, the mega merger serves as evidence that the energy business is changing: 鈥淪hell managers highlight the increasing attractiveness of midstream [鈥 and downstream [鈥 activities, which offer less risk and fatter margins than finding and developing new oil and gas.鈥�1 Simply put, the deal is a cheaper and easier way for Shell to increase its reserves by approximately 25%.
Despite a turbulent start to the year, the long-term outlook for natural gas is very positive. The market is growing as more countries turn to LNG as an environmentally friendly solution to meet their surging energy demands. And that is exactly why Shell will view its £47 billion bet on BG as a calculated investment, rather than an optimistic gamble.
The Shell-BG merger will undoubtedly grab much of the limelight at the upcoming 91天堂原創 Gas Conference in Paris. This month鈥檚 issue of LNG Industry includes a preview of a small selection of companies that will be exhibiting at the show (starting on p. 87). This issue also focuses heavily on the LNG industry in Europe, with a regional report from the Economist Intelligence Unit (p. 12) and a range of interesting articles looking at the continent鈥檚 evolving LNG industry from SC Klaipedos Nafta (p. 18), Enag谩s (p. 23), Gate Terminal (p.28) and Titan LNG (p. 33).
1. 鈥楽hell and BG: a vote for gas鈥�, The Economist , (11 April 2015).
2. ELLACOTT, T., 鈥楽hell secures leading positions in deepwater oil and LNG鈥�, Wood Mackenzie, , (8 April 2015).
