Shell picky amid price slump

Shell, which operates one of the world's largest fleets of LNG carriers, expects LNG demand to grow by 5 per cent a year over the next couple of decades.
Shell, which operates one of the world's largest fleets of LNG carriers, expects LNG demand to grow by 5 per cent a year over the next couple of decades.PHOTO: SHELL

Good time to invest but need to be selective, says head of gas unit

The slump in oil and gas prices means that global energy giant Royal Dutch Shell has to be more selective about its investments, said the company's head of gas.

Mr Maarten Wetselaar, executive vice-president of Shell's integrated gas business, told a briefing yesterday: "As energy prices go down, our cashflow goes down as well. We need to be responsible, we need to make sure that our investments are not so high that we are starting to risk the balance sheet, so we have to be more critical about our investments."

He added: "Whatever we do, whatever we invest in, we need to be able to afford it."

Spot LNG prices in Asia have tumbled some 60 per cent from a record US$19.70 per million British thermal units in February last year, according to Energy Intelligence Group.

Singapore-based Mr Wetselaar was speaking to reporters ahead of a media visit to a Shell liquefied natural gas (LNG) vessel.

On the other hand, he noted, even as energy prices are weighed down by the global supply glut and weak demand, they also spell less pricey investments.

"It's still a good (time) to build up on gas projects," he said, adding that Shell's stable balance sheet will continue to support these investments.

He remained confident of the company's gas business and the industry's longer-term prospects, especially as more countries clean up their energy systems.

Shell, which operates one of the world's largest LNG fleets, expects LNG demand to grow by 5 per cent a year over the next couple of decades. Most of this growth will likely come from countries in Asia, including China.

This means that the global LNG market could hit 460 million tonnes a year by 2030 - almost twice the demand last year, which stood at 240 million tonnes.

"We're clearly at the start of a big energy transition and that's because today's energy mix (which is largely derived from oil) is not sustainable," said Mr Wetselaar.

"The future of this company is inextricably linked to gas and we want to be there, to be ahead of the curve."

Already, Shell is building the world's largest floating LNG project, which can produce at least 3.6 million tonnes of LNG a year when completed, an amount enough to easily satisfy Hong Kong's annual natural gas needs.

The group's planned US$70 billion (S$99 billion) takeover of BG Group - a move that is set to transform Shell into the world's biggest LNG supplier - shows how it is "increasing the size of that bet", said Mr Wetselaar.

"We want to be ready to be there (when more countries shift to renewable energy sources)."

Mr Wetselaar said the company sees many opportunities in the South-east Asian region, especially with the growing trend of small-scale energy solutions.

He added that Singapore is "very well placed" to serve the company as it looks at distributing small-scale energy projects to islands across the region, given its solid infrastructure and experience as a logistics hub.

A version of this article appeared in the print edition of The Straits Times on September 23, 2015, with the headline 'Shell picky amid price slump'. Print Edition | Subscribe