Shell’s Strategic Shift to LNG Takes Shape with New Deals.
Shell (SHEL.L) has successfully replaced the liquefied natural gas (LNG) volumes it lost after exiting Russia in 2022 through a series of strategic deals, reflecting CEO Wael Sawan’s focus on growing demand for LNG while scaling back on renewable energy initiatives.
The Anglo-Dutch energy giant has launched new projects in the United Arab Emirates and Trinidad and Tobago and acquired a substantial trading portfolio, moving halfway towards its goal of increasing LNG volumes by up to 20 million metric tons per year (mtpa) between 2023 and 2030, according to analysts and Reuters calculations.
These developments have helped Shell recover the supplies lost when it withdrew from Russia following Moscow’s invasion of Ukraine in 2022, which resulted in a loss of 2.5 mtpa of supplies from the Sakhalin LNG project and a 5% drop in Shell’s liquefaction volumes in 2023 compared to the previous year.
LNG has become a cornerstone of Shell’s business since its $53 billion acquisition of BG Group in 2016. The integrated gas division contributed nearly half of Shell’s $28 billion adjusted earnings in 2023, largely due to robust performance from its trading business, the world’s largest LNG trader.
Since assuming his role in January 2023, Sawan has aimed to enhance Shell’s performance by withdrawing from several wind, solar, and low-carbon ventures while doubling down on natural gas. Shell predicts the LNG market will expand by around 50% by 2040, growing from approximately 400 mtpa in 2023, driven by the economic growth of Asian nations and the transition from coal to gas in power generation.
Shell plans to increase its LNG sales volumes by 20% to 30% by the end of the decade, targeting up to 87 mtpa from 67 mtpa in 2023. This week, Shell announced a 10% stake investment in Abu Dhabi National Oil Company’s Ruwais LNG project, which will more than double the plant’s output to 15 million mtpa by 2028. The project, costing around $5.5 billion according to Japan’s Mitsui, will supply Shell with 1 million mtpa.
Additionally, Shell has agreed to proceed with the development of its 2.7 trillion cubic feet (tcf) Manatee natural gas field offshore Trinidad, which will supply the country’s under-utilized 15 mtpa Atlantic liquefaction facility. Last month, Shell acquired Singaporean LNG company Pavilion Energy from Temasek, gaining access to new gas markets in Europe and Singapore and securing 6.5 mtpa of supply contracts globally.
These deals are crucial for Shell to reach its 2030 LNG sales growth target, said Saul Kavonic, head of energy research at MST Financial. “These deals, in addition to ongoing LNG projects, should enable Shell to achieve its growth target, provided they can also manage portfolio declines,” Kavonic noted.
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Zoë Yujnovich, Shell’s Integrated Gas and Upstream Director, stated that around half of the 2030 growth, approximately 11 mtpa, will come from projects under construction, such as Qatar’s North Field expansion, Shell’s LNG Canada project expected to commence next year, and Nigeria’s NLNG facilities. Shell also plans to enhance its operational LNG plants, including the Prelude floating LNG facility off Australia’s western coast and the Atlantic facility in Trinidad and Tobago.
Shell aims to maintain a 50-50 ratio between its own LNG production and volumes acquired from other producers. The recent investments align with Shell’s strategy, which positions LNG as a “critical fuel in the energy transition,” according to Accela Research analyst Rohan Bowater.
“Shell portrays LNG as a decarbonization tool, but its impact on reducing the carbon intensity of its portfolio is limited,” Bowater said. Increasing the proportion of gas in Shell’s portfolio by 10% by 2030 would result in a 4% reduction in net carbon intensity, whereas the same increase in renewable capacity would achieve a 14% reduction, he added.
