What’s Really Going on With Shell and Gas?

Mike’s Blog April/May 2015

The past couple of weeks has been relatively quiet, the price of Brent has crept up to close on Friday just short of $67/bbl with WTI at just under $60.

Production has continued to rise, despite the reduction of working US rigs, but at a slower rate than before. Speculation is rife, but I suspect that it is an ‘overshoot’ of the productive wells which have been brought on stream in the last few months. Given the amazingly rapid advances in technology in the shale area, it may be that the fewer rigs are actually accessing more oil as the well designs get better.

Gas seems to be the main story with US shale gas now headed, not just to Grangemouth as previously reported, but to a petrochemical plant on Teesside- cheaper feedstock for a variety of products.

I remember just after I graduated in the early 1970’s I was working in the chemical industry for a major chemical intermediates manufacturer. This was at the time of the first oil price shock and our feedstock had quintupled in price, but the product prices were slow to respond. I was the mechanical engineer working with a team of very bright chemical engineers designing and building chemical re-routes for as many of our products as we could. This is analogous as the US shale gas LNG is a cheaper alternative feedstock without having to do major re-route,- in this case the investment is in a re-gas plant, storage and tanker handling.

The Shell-BG takeover continued to be the subject of a lot of analysis and of course speculation.

In my last blog I mentioned that this deal would set Shell firmly along the lines of being a major gas player on a global basis.

I think I said that this had been a strategy for Shell for some time, but an interesting article on OILPRO, gave some further detail. It claimed that the deal was in terms of value at $81.8bn, second only to the Exxon takeover of Mobil in late 1998.

Shell’s global LNG capacity of 26 million tonnes /year overtook ExxonMobil at the end of last year. The BG deal is taking Shell’s capacity to 33million tonnes/year with a further 20 million tonnes capacity in the pipeline. This is being heralded as the first truly global LNG company with , ‘unrivalled flexibility and exposure to virtually every major LNG supply source and market…’ according to Wood MacKenzie.

Shell had previously in 2014 acquired the LNG assets of Repsol in Latin America.

With BGs assets in East Africa complementing Shell’s positions in Tanzania and BG’s position as a buyer of LNG from the US Gulf Coast this really does give Shell a really strong LNG position.

As I reported the last time BG is ramping up production in Australia, particularly Queensland’s Curtis facility in Gladstone, which is now beginning to deliver. This is sourced from the Bowen Basin where Shell also holds acreage.

And we must not forget that Shell’s Prelude floating LNG project is due to come on stream in 2018.

Likewise in Western Canada there is great scope for synergies between Shell and BG assets in British Columbia.

There is an awful lot of gas in the world and this deal will ensure that it will come to market.

Elsewhere we see that OTC has been on this week in Houston with Offshore Europe in Aberdeen later in the summer. In Norway the ‘mini-ONS’ was cancelled due to market conditions. This latter event was stared a couple of years ago as and additional event in the ONS ‘off year’, but given its proximity time wise to OTC and the Aberdeen Show we should not be all that surprised that it was called off.

A lot on gas and Shell/BG this time, but more other news to follow in due course……

All the best.

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