The magnificent seven

Shell’s $70bn takeover of BG will create the world’s largest LNG trader. But what are the impacts for the market? Here are seven ways Shell’s takeover of BG will impact LNG. 

  1. Lower spot LNG trading liquidity. Usually, with consolidation, there will be lower trading liquidity. Both Shell and BG were active in the spot market. The takeover means one less trader in the market. This isn’t the first time a Shell deal has had this effect. Shell bought Spanish company Repsol’s LNG assets for $6.7bn two years ago (see Petroleum Argus, 1 March 2013, p3). Shell absorbed cargoes from its acquired 23pc stake in Trinidad and Tobago’s Atlantic LNG project into its portfolio, whereas Repsol had offered some of them into the spot market.
  2. Further pressure on LNG freight rates. With the additional fleet and larger global portfolio, Shell would be expected to optimise shipping better. This may result in slimming down of the combined fleet, adding tonnage to a shipping market that is already under pressure from overcapacity.
  3. LNG project spending boost? Could Shell splash cash on some of BG’s stalled LNG projects? BG turned cold on the Prince Rupert LNG project in Canada because of lower oil prices, as well as the US Lake Charles project. Could these look attractive to Shell? In turn, these might push out smaller LNG projects.
  4. Boosting eastern Australia’s LNG development. Shell’s deal could help the development of BG’s 8.5mn t/yr Queensland Curtis LNG (QCLNG) venture. Shell could use gas from its Arrow Energy coal-bed methane joint venture, which had planned to develop its own LNG plant, for QCLNG instead. The reserves could supply QCLNG for 20 years. The two-train project has room for up to five trains.
  5. The first big US LNG exporter. Shell will become the first major exporter of US LNG through its BG deal. BG has signed 20-year contracts to export gas from Cheniere Energy’s Sabine Pass LNG project in Louisiana. Train 1 is scheduled to ship its first test cargo late this year and start commercial exports in February 2016. The BG deal would make Shell by far the dominant US LNG exporter, as BG has the right to all of the export capacity at US midstream firm Energy Transfer’s Lake Charles LNG export project in Louisiana, as well as its deal with Sabine Pass. And Shell has its own smaller LNG export project at Elba Island.
  6. Rivals may have to catch up. With the deal, Shell significantly stretches its lead over rival ExxonMobil by nearly 14mn t/yr of LNG. How will the other catch up? Does ExxonMobil care? An old rumour of ExxonMobil looking for Anadarko has already resurfaced. But majors may be eyeing other smaller players with LNG interests such as Ophir too.
  7. Keeping social media staff busy. BG is not British Gas (as if you didn’t know). British Gas is a residential and business energy provider in the UK; a part of UK utility Centrica. A merger of Centrica and Shell would be quite a different matter for regulators than the Shell takeover of BG, but that didn’t stop the British media from getting confused between BG and British Gas this morning. British Gas was the name of a state-owned company privatised in 1986, which was split into BG and Centrica in 1997. Centrica retained the old name as a parochial brand. In contrast, BG has become increasingly global since its birth, but is now being swallowed up by a truly global giant, just as it reaches adulthood at 18 years old.

For more information, please contact OilBlog@argusmedia.com