Shell Makes Big Bet On Boom In Natural Gas

As Big Oil increasingly becomes Big Gas, no major petroleum player may have more at stake in the shift than Royal Dutch Shell. More than any of its rivals, Royal Dutch Shell, which reported its quarterly results on May 2, is betting its future on the business of bringing natural gas from remote locations like Qatar to energy-hungry destinations like China and Japan. And while analysts expect the results to show a sharp decline from last year’s first quarter, in part because of disruptions in its Nigerian gas operations, many experts say Shell may eventually show big benefits from its natural gas emphasis.

Increasingly, to make gas a global commodity, companies super-cool it into a liquid form for transport on specialized ships. Shell has already invested about $40 billion in liquefied natural gas (LNG), production plants, storage terminals, and related systems, and plans to continue pumping money into that business.

Shell now has about 7 percent of the world LNG business, with ambitions to more than double that share through new projects and acquisitions. Last year, LNG and related businesses earned Shell $9.4 billion of its $25.1 billion in profit.

Andrew Brown, Shell’s Head of International Exploration and Production, said the company expected global demand for LNG to grow rapidly in the coming years, doubling by 2025 to about 500 million tons a year, the equivalent of about 4.5 billion barrels of oil, making it by far the fastest-growing fuel. The main reason for the anticipated growth is that natural gas is abundant. And because of the U.S. shale gas boom, it has become relatively cheap — especially in North America, where prices lately have been in the range of $4 per million British thermal units, compared with highs of $13 as recently as 2005.

The European spot price is around $10 per million BTU's, and the Asian price around $15; contract prices, often linked to oil, may be higher. And because it burns much cleaner than either coal or oil, it will very likely stay in favor because its use can help lower the greenhouse gas emissions that are blamed for causing global warming.

To Brown’s frustration, not everyone gets the message. That is one reason Shell’s big LNG bet is no sure thing. The United States has wholeheartedly embraced gas. But Europe, mired in economic doldrums, has turned to coal, which is less expensive. This has driven down demand for gas in the region, which in recent decades had been one of the world’s biggest markets for natural gas via pipelines and LNG.

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