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Researched by Industrial Info Resources (Sugar Land, Texas)--Royal Dutch Shell's (NYSE:RDSA.A) (The Hague, Netherlands) $70 billion acquisition of BG Group plc (Reading, England) promises to create a liquefied natural gas (LNG) production giant, but some projects could be delayed, put on hold or even cancelled as Shell moves to eliminate duplication of effort and create synergies.
Industrial Info is tracking 270 active Shell projects worth $107.03 billion and 37 BG Group projects worth $38.85 billion.
Shell Chief Financial Officer Ben Van Beurden told analysts Wednesday the BG acquisition fits well with Shell's growth strategy, particularly in LNG and deep water production. At the same time, he said, "Asset sales are expected to increase, $30 billion targeted from 2016 to 2018, there would be a reduction in combined capital investment, and a reduction in the number of longer term portfolio themes. We will refocus the company on fewer, larger themes, in order to drive profitability and balance risk and unlock more value from the combined portfolios."
Van Beurden noted the companies have an overlapping presence in 15 countries. "We are expecting to deliver some $2.5 billion of pre-tax synergies from this combination from 2018. This would come from operating cost savings, for example from corporate, administrative, organizational and IT operational efficiencies, as well as marketing and shipping savings. And from reduced exploration activity in the enlarged group, we plan to slow down there, since the growth portfolio would be considerably enhanced."
The acquisition of BG will bring deep-water production from Brazil. Also, Beurden said, there is "strong growth potential in Australia, from Shell's share in Gorgon and Prelude [projects] and BG's Queensland LNG, totaling 45 mtpa [million tonnes per year] by 2018, based on projects that are under construction today, an increase of almost 80% in equity liquefaction capacity compared to Shell alone at 25.6 mtpa at the end of 2014."
But BG's portfolio "will also bring important new LNG optionality into Shell," Beurden continued. "In Canada, both companies have plans on the drawing board for LNG exports from the West coast of British Columbia, there is clearly scope for some review there."
Shell's plans for a grassroot natural gas liquefaction plant near Kitimat in British Columbia include construction of two 6,000-tonne-per-year LNG trains and two 225,000 cubic meter storage tanks, with a total investment value of $10 billion.
LNG Canada, a joint venture by Shell, Korean Gas Corporation (KOGAS) (Seongnam, Gyeonggi, South Korea), Mitsubishi (Tokyo, Japan) and PetroChina (NYSE:PTR) (Beijing, China), is the performing front end engineering and design (FEED), along with Stantec (NYSE:STN) (Edmondton, Alberta), WorleyParsons (North Sydney, Australia), AMEC Foster Wheeler (NYSE:AMFW) (London, England) and Saipem (Milan, Italy) (with Chiyoda (Japan)). Construction kick-off is slated for second-quarter 2016, with completion in second-quarter 2020.
Also in Canada, BG is performing market analysis for a $10 billion, grassroot natural gas liquefaction plant at Prince Rupert, British Columbia, including two 7,000-tonne-per-year liquefaction trains. LNG would be sent to East Asian markets. Construction kick-off would occur in second-quarter 2017, with completion in second-quarter 2019.
Jesus Davis, Industrial Info's vice president of research for the Oil & Gas Production, Pipelines and Terminals, said, "They may have to pick one [Canada LNG project] and follow it through to avoid duplication of effort."
Burden continued, "And in the Lower 48, BG is working on plans to export LNG from Lake Charles [Louisiana], and we have similar, but smaller plans at Elba [Louisiana], where construction of the modular LNG units is underway. In the Atlantic basin, the combination deepens an existing position in Atlantic LNG, in Trinidad & Tobago, increasing our offtake from West Africa and adding the Gulf Coast once Sabine Pass is on-stream, which all comes together in a much improved trading and supply portfolio in this region."
He also noted that BG's Queensland Curtis LNG (QCLNG) project in Australia was ramping up production.
Shell aims to complete the BG acquisition in early 2016, said Shell Chief Financial Officer Simon Henry, adding 2016 will be "where we bed down the new portfolio, and launch the cost savings and asset sales programs."
Industrial Info's Davis said some projects may be put on hold or delayed while Shell sorts out the details of the acquisition. He added, "I was surprised they [Shell] made the acquisition, but it makes perfect sense. This makes two strong companies into one stronger company."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
Industrial Info is tracking 270 active Shell projects worth $107.03 billion and 37 BG Group projects worth $38.85 billion.
Shell Chief Financial Officer Ben Van Beurden told analysts Wednesday the BG acquisition fits well with Shell's growth strategy, particularly in LNG and deep water production. At the same time, he said, "Asset sales are expected to increase, $30 billion targeted from 2016 to 2018, there would be a reduction in combined capital investment, and a reduction in the number of longer term portfolio themes. We will refocus the company on fewer, larger themes, in order to drive profitability and balance risk and unlock more value from the combined portfolios."
Van Beurden noted the companies have an overlapping presence in 15 countries. "We are expecting to deliver some $2.5 billion of pre-tax synergies from this combination from 2018. This would come from operating cost savings, for example from corporate, administrative, organizational and IT operational efficiencies, as well as marketing and shipping savings. And from reduced exploration activity in the enlarged group, we plan to slow down there, since the growth portfolio would be considerably enhanced."
The acquisition of BG will bring deep-water production from Brazil. Also, Beurden said, there is "strong growth potential in Australia, from Shell's share in Gorgon and Prelude [projects] and BG's Queensland LNG, totaling 45 mtpa [million tonnes per year] by 2018, based on projects that are under construction today, an increase of almost 80% in equity liquefaction capacity compared to Shell alone at 25.6 mtpa at the end of 2014."
But BG's portfolio "will also bring important new LNG optionality into Shell," Beurden continued. "In Canada, both companies have plans on the drawing board for LNG exports from the West coast of British Columbia, there is clearly scope for some review there."
Shell's plans for a grassroot natural gas liquefaction plant near Kitimat in British Columbia include construction of two 6,000-tonne-per-year LNG trains and two 225,000 cubic meter storage tanks, with a total investment value of $10 billion.
LNG Canada, a joint venture by Shell, Korean Gas Corporation (KOGAS) (Seongnam, Gyeonggi, South Korea), Mitsubishi (Tokyo, Japan) and PetroChina (NYSE:PTR) (Beijing, China), is the performing front end engineering and design (FEED), along with Stantec (NYSE:STN) (Edmondton, Alberta), WorleyParsons (North Sydney, Australia), AMEC Foster Wheeler (NYSE:AMFW) (London, England) and Saipem (Milan, Italy) (with Chiyoda (Japan)). Construction kick-off is slated for second-quarter 2016, with completion in second-quarter 2020.
Also in Canada, BG is performing market analysis for a $10 billion, grassroot natural gas liquefaction plant at Prince Rupert, British Columbia, including two 7,000-tonne-per-year liquefaction trains. LNG would be sent to East Asian markets. Construction kick-off would occur in second-quarter 2017, with completion in second-quarter 2019.
Jesus Davis, Industrial Info's vice president of research for the Oil & Gas Production, Pipelines and Terminals, said, "They may have to pick one [Canada LNG project] and follow it through to avoid duplication of effort."
Burden continued, "And in the Lower 48, BG is working on plans to export LNG from Lake Charles [Louisiana], and we have similar, but smaller plans at Elba [Louisiana], where construction of the modular LNG units is underway. In the Atlantic basin, the combination deepens an existing position in Atlantic LNG, in Trinidad & Tobago, increasing our offtake from West Africa and adding the Gulf Coast once Sabine Pass is on-stream, which all comes together in a much improved trading and supply portfolio in this region."
He also noted that BG's Queensland Curtis LNG (QCLNG) project in Australia was ramping up production.
Shell aims to complete the BG acquisition in early 2016, said Shell Chief Financial Officer Simon Henry, adding 2016 will be "where we bed down the new portfolio, and launch the cost savings and asset sales programs."
Industrial Info's Davis said some projects may be put on hold or delayed while Shell sorts out the details of the acquisition. He added, "I was surprised they [Shell] made the acquisition, but it makes perfect sense. This makes two strong companies into one stronger company."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.
