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Shell (SHEL) to Expand LNG Portfolio With Pavilion Energy Deal
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Shell plc (SHEL - Free Report) , the British oil and gas supermajor, has finalized a deal to acquire Pavilion Energy, the Singaporean liquified natural gas (LNG) firm from Temasek, a global investment company. The acquisition is likely to strengthen Shell’s overall LNG portfolio and allow the energy major to tap into key gas markets in Europe and Singapore. Shell is aggressively pursuing an expansion strategy to solidify its position as a leader in LNG markets.
Per a Reuter’s report, the sale of Pavilion Energy to Shell is worth hundreds of millions of dollars. However, Temasek and Shell have not yet disclosed any financial details about the transaction in their statements.
The acquisition will be covered within Shell’s present cash capital guidance. The company has stated that its cash capital guidance will remain unchanged, which implies that it will not need to increase its planned spending to complete the purchase. The deal exceeds Shell’s internal rate of return (IRR) hurdle rate for its Integrated Gas business, aligning with its growth ambition target of a 15-25% increase in purchased LNG volumes from the 2022 level.
The acquisition is scheduled to be closed by the first quarter of 2025, contingent upon regulatory approvals, following which Shell will start integrating the asset portfolios. The deal with Temasek should help Shell expand its LNG portfolio and meet its long-term objective of growing its LNG business by 20-30% within 2030 (compared to 2022).
Details of the Transaction
The deal includes Pavilion Energy’s LNG supply contracts for 6.5 million metric tons per annum (mtpa) from suppliers like Chevron, BP and QatarEnergy. The LNG supplied under these contracts will be sourced from U.S. liquefaction facilities, including the Corpus Christi Liquefaction, Freeport LNG and Cameron LNG.
Shell will also gain access to Pavilion Energy’s long-term regasification capacity of 2 mtpa at its Isle Grain LNG terminal in the United Kingdom, along with its regasification access in Spain and Singapore. Further, as part of the deal, Shell will take over Pavilion’s LNG bunkering business in Singapore.
Prospects
Shell expects the demand for LNG to rise by more than 50% within 2040 as industries rapidly switch from coal to gas. The trend has especially been growing in China, South Asian and Southeast Asian countries. Shell believes that LNG will play a crucial role in energy transition and these countries would require more LNG to support their economic growth and secure their energy needs.
Shell holds Singapore’s first LNG importing license through its BG acquisition. The company caters to nearly 25% of Singapore’s natural gas requirements. Further, it has reliably and competitively delivered LNG to Singapore and other Asian markets while trading in LNG, crude oil and other energy commodities across Asia.
Following the closure of the deal, Temasek will retain its subsidiary, Gas Supply Pte Ltd (“GSPL”). GSPL will take over Pavilion Energy's pipeline gas contracts with customers in the power sector as these are not included in the deal. Further, Pavilion Energy’s 20% interest in Blocks 1 and 4 in Tanzania is also excluded from the deal. Temasek’s management has expressed its confidence over Shell’s capability to expand Pavilion Energy’s business.
A Temasek spokesperson further added that Pavilion Energy will continue to operate as a separate entity until the deal is concluded.
Archrock is an energy infrastructure company based in the United States, with a focus on midstream natural gas compression. It provides natural gas contract compression services and generates stable fee-based revenues.
SM Energy is an upstream energy firm operating in the prolific Midland Basin region and the South Texas region. For 2024, the company expects its production to increase from the prior-year reported figure, signaling a bright production outlook.
Hess Midstream owns, operates, develops and acquires a wide range of midstream assets, providing services to Hess Corporation and other third-party customers. The partnership has a stable fee-based revenue model secured via long-term commercial contracts. Since Hess Midstream operates through 100% fee-based contracts, it is exposed to minimal commodity price risks.
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Shell (SHEL) to Expand LNG Portfolio With Pavilion Energy Deal
Shell plc (SHEL - Free Report) , the British oil and gas supermajor, has finalized a deal to acquire Pavilion Energy, the Singaporean liquified natural gas (LNG) firm from Temasek, a global investment company. The acquisition is likely to strengthen Shell’s overall LNG portfolio and allow the energy major to tap into key gas markets in Europe and Singapore. Shell is aggressively pursuing an expansion strategy to solidify its position as a leader in LNG markets.
Per a Reuter’s report, the sale of Pavilion Energy to Shell is worth hundreds of millions of dollars. However, Temasek and Shell have not yet disclosed any financial details about the transaction in their statements.
The acquisition will be covered within Shell’s present cash capital guidance. The company has stated that its cash capital guidance will remain unchanged, which implies that it will not need to increase its planned spending to complete the purchase. The deal exceeds Shell’s internal rate of return (IRR) hurdle rate for its Integrated Gas business, aligning with its growth ambition target of a 15-25% increase in purchased LNG volumes from the 2022 level.
The acquisition is scheduled to be closed by the first quarter of 2025, contingent upon regulatory approvals, following which Shell will start integrating the asset portfolios. The deal with Temasek should help Shell expand its LNG portfolio and meet its long-term objective of growing its LNG business by 20-30% within 2030 (compared to 2022).
Details of the Transaction
The deal includes Pavilion Energy’s LNG supply contracts for 6.5 million metric tons per annum (mtpa) from suppliers like Chevron, BP and QatarEnergy. The LNG supplied under these contracts will be sourced from U.S. liquefaction facilities, including the Corpus Christi Liquefaction, Freeport LNG and Cameron LNG.
Shell will also gain access to Pavilion Energy’s long-term regasification capacity of 2 mtpa at its Isle Grain LNG terminal in the United Kingdom, along with its regasification access in Spain and Singapore. Further, as part of the deal, Shell will take over Pavilion’s LNG bunkering business in Singapore.
Prospects
Shell expects the demand for LNG to rise by more than 50% within 2040 as industries rapidly switch from coal to gas. The trend has especially been growing in China, South Asian and Southeast Asian countries. Shell believes that LNG will play a crucial role in energy transition and these countries would require more LNG to support their economic growth and secure their energy needs.
Shell holds Singapore’s first LNG importing license through its BG acquisition. The company caters to nearly 25% of Singapore’s natural gas requirements. Further, it has reliably and competitively delivered LNG to Singapore and other Asian markets while trading in LNG, crude oil and other energy commodities across Asia.
Following the closure of the deal, Temasek will retain its subsidiary, Gas Supply Pte Ltd (“GSPL”). GSPL will take over Pavilion Energy's pipeline gas contracts with customers in the power sector as these are not included in the deal. Further, Pavilion Energy’s 20% interest in Blocks 1 and 4 in Tanzania is also excluded from the deal. Temasek’s management has expressed its confidence over Shell’s capability to expand Pavilion Energy’s business.
A Temasek spokesperson further added that Pavilion Energy will continue to operate as a separate entity until the deal is concluded.
Zacks Rank and Key Picks
Currently, SHEL carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the energysector are Archrock Inc. (AROC - Free Report) , SM Energy (SM - Free Report) and Hess Midstream Partners LP (HESM - Free Report) . Archrock and SM Energy presently sport a Zacks Rank #1 (Strong Buy) each, while Hess Midstream carries a Zacks Rank of #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Archrock is an energy infrastructure company based in the United States, with a focus on midstream natural gas compression. It provides natural gas contract compression services and generates stable fee-based revenues.
SM Energy is an upstream energy firm operating in the prolific Midland Basin region and the South Texas region. For 2024, the company expects its production to increase from the prior-year reported figure, signaling a bright production outlook.
Hess Midstream owns, operates, develops and acquires a wide range of midstream assets, providing services to Hess Corporation and other third-party customers. The partnership has a stable fee-based revenue model secured via long-term commercial contracts. Since Hess Midstream operates through 100% fee-based contracts, it is exposed to minimal commodity price risks.