Natural Gas Companies: Shell's Huge LNG Win

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Royal Dutch Shell (NYSE: RDS.A) last week inked a $6.7 billion deal to buy Spanish energy company Repsol SA's (RPYY) liquefied natural gas (LNG) business.

Shell will buy a portion of Repsol's LNG assets for $4.4 billion in cash and $2.3 billion in financial leases and assumed debt - more than double pre-sale estimates, according to Bernstein Research.

Tuesday's deal underscores the looming importance of LNG to natural gas companies and the global energy market.  

"LNG overcomes the primary problem faced by natural gas users," explained Money Morning's Global Energy Strategist Dr. Kent Moors earlier this year. "Available supply is traditionally limited to where pipelines are running. LNG, on the other hand, cools gas to a liquid, allowing it to be transported by tankers almost anywhere by water, regasified at an import terminal, and then injected into the local pipeline network."

This opportunity means huge profits for companies - and investors - who get ahead in the LNG market.  

Shell's Big LNG Win

Shell believes global consumption of LNG will double from now until 2025. Earlier this year, Shell's ECO Peter Voser said he expects gas to play a significant role over the next 40 years, with much greater growth rates than oil.

Voser said in November 2012 that Shell plans to invest $20 billion in natural gas products globally over the next few years.

One of the reasons Shell pursued this current deal was to get Repsol's stakes in a major LNG project in Trinidad and Tobago, in addition to a small project off coastal Peru. Shell previously had no presence in these emerging regions.

Operating in these regions gives Shell the ability to provide gas to Latin America, and use its Nigerian gas operations to service Asia. That'll save the company shipping costs and boost profit margins.

"This is a perfect complement to what we have. We get a West Atlantic position and an East Pacific position. These were blind spots," Maarten Wetselaar, Shell's executive vice president told The New York Times. 

The deal comes with a fleet of specialized LNG carrier ships and will add 30% to Shell's LNG supplies, according to The New York Times.

Macquarie Securities estimated Shell will now have 6.6 million tons of LNG to trade, or about 20% of its total volume.

Why Natural Gas Companies are Chasing LNG

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