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Editorial/Opinion

 

 

Andy Critchlow: Shell-BG LNG
move from blessing to curse

Bidness Etc

LNG markets have entered a deep downturn due to a mixture
of global oversupply and rapidly weakening demand in Asia.

Liquefied natural gas is taking the shine off Shell's $70 billion takeover of BG Group. When the Anglo-Dutch major launched its deal in April, LNG was one of the main ways it justified the deal to investors. That line of argument doesn't look so convincing now.

BG's third-quarter results, released on Oct. 30, showed marketing and shipping of LNG taking a big hit. Despite the company revising higher its earnings expectations for the segment in 2015, revenue slumped 65 percent year-on-year, against a 9 percent top-line fall for the overall group.

That's a problem. Long term, the combination will create the world's largest LNG shipper with around 14 percent of the global market for the fuel, which is natural gas chilled to a liquid and then transported to customers by giant tanker. But Shell needs LNG to contribute in order to justify the 50 percent premium it offered in April to secure BG.

BG, for its part, remains confident that its LNG business will hit earnings guidance in the region of $1.4 billion this year. But the sector is under the gun to an even greater degree than crude oil prices, which have fallen by 43 percent since last October, and off which BG links most of its LNG contracts.

LNG markets have entered a deep downturn due to a mixture of global oversupply and rapidly weakening demand in Asia. BG Group estimates that global supply of the fuel will grow by 50 percent to around 375 million tonnes annually by 2020 as a series of LNG developments that have been decades in the planning come online. Compared with oil, complex LNG projects are harder to defer due to the long-term nature of the business.

Shell, which on Oct. 29 said it was taking a net charge of $7.9 billion on project writeoffs, is battling the oil slump as best as it can. If it was hoping BG's LNG capabilities could brighten the otherwise grim outlook, it should think again.

Andy Critchlow, is a Reuters Breakingviews columnist. The opinions expressed are his own. Petroleumworld does not necessarily share these views.

Editor's Note: This commentary was originally published by Reuters Breakingviews, October 30, 2015. Petroleumworld reprint this article in the interest of our readers.

All comments posted and published on Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of Petroleumworld. All comments expressed are private comments and do not necessary reflect the view of this website. All comments are posted and published without liability to Petroleumworld.

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Petroleumworld News 11/02/2015

 

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