Analysts: Shell Eying LNG Growth Through BG Acquisition

Post-acqusition Shell would hold 16 percent of the global LNG market

Royal Dutch Shell has this week agreed to acquire BG Group, with observers pointing to BG Group's Liquefied Natural Gas (LNG) assets as a key reason for the deal, Reuters reports.

If the deal goes through, Shell would gain access to BG Group's LNG logistics capacity, including terminals, pipelines, specialised tankers, rigs, super coolers, regasification facilities, and storage points.

"We are seeing a gasification of energy demand," said Richard Gorry, a director at JBC Energy Asia, adding "Shell clearly recognize this."

"That said, Shell is still taking a big gamble because if the price of oil and gas doesn't go back up (in the next 24 months), I would imagine this might put them in a difficult position in terms of cash flow."

It is understood that the deal would add 25 percent to Shell's current, proven oil and gas reserves.

According to a Financial Times report, analyst reactions have largely pointed to the logic of a tie up between Shell and BG Group in terms of Shell's position in the LNG market.

"The key attractions for Shell are BG's deepwater assets in Brazil and its LNG portfolio," said Biraj Borkhataria for RBC Capital Markets.

"BG's LNG portfolio combined with Shell's would represent circa 40m tons per annum or roughly 16 percent of the global LNG market, further propelling Shell's position as a leader in this area."

In addition to Brazilian oil, it is understood that through the deal Shell would acquire large LNG assets in Australia as well as "significant growth options" in Tanzania and Lake Charles LNG.

Gasification of Energy Demand

"It's good to see that the biggest takeover by far this year has a compelling commercial logic," said Philip Barker, partner at Cavendish Corporate Finance.

"BG's deep water positions and strengths in LNG shipping and marketing combine well with Shell's scale and financial strength."

Separately, FirstEnergy's Stephane Foucaud said "Shell's acquisition of BG is big on Asian gas because it [East Africa and Australia] fits its portfolio."

Reuters said Shell has offered a mix of shares and cash in a deal worth £13.50 per share ($20.08), a 52 percent premium over BG Group's 90-day average listed share price.

It is understood that the deal will be the 14th largest merger in history, valuing BG Group at around £47 billion ($70 billion), if it completes.

In December, Shell was said to have commissioned a specialised ocean-going LNG bunkering vessel for operation in the Amsterdam-Rotterdam-Antwerp region.

Last month, Shell launched the Gulf of Mexico's first LNG offshore supply vessel.