Skip to Content
@easwaran-17e9
Fossil Fuel - Nov 24, 2017

When Shell purchased BG for US$53 billion in 2016 to become the world ’s largest LNG company, it capped off a change in the way the LNG world worked.

The LNG Bandwagon Keeps Growing

LNG used to be more of a producer-buyer relationship, with firms like Petronas, Pertamina and Qatargas cutting deals directly with buyers in Japan and South Korea. With a tidal wave of LNG swamping the industry, the opportunity of increased trading arose as LNG trading hubs like Singapore developed. With access to BG ’s vast LNG portfolio and its own, Shell was in prime position to take advantage of a nimbler, more flexible LNG environment.

With the purchase of French power utility Engie’s LNG assets for US$1.5 billion, Total now leaps to second place among the world’s (publicly-traded) LNG sellers. While a small drop compared to the BG purchase, it caps off a string of LNG investments for Total which include the South Pars in Iran and its stake in rising LNG star Papua New Guinea. From Engie, Total will receive interest in the Cameron LNG project in the US, a 5% stake in the Idku LNG project in Egypt, a 10-strong LNG tanker fleet and access to 14 mtpa of regasification capacities in Europe, with Engie keeping its downstream gas activities. It will expand its portfolio of LNG sales-and-purchase agreements, with new output coming from Algeria, Nigeria, Norway, Russia, Qatar and the US. This puts on course for Total to achieve LNG volumes of 40 million tons per year by 2020, from 23 million tons today, making it a more well-rounded and competitive LNG player with access to some 10% of the global market. Total will also become Engie’s priority gas supplier for 10 years, ensuring captive demand for an extended period, given how closely French companies work with each other.

With this deal, Total leapfrogs over Chevron and ExxonMobil in the LNG space, who also have their own ambitious LNG growth plans. It seems that while the supermajors are reducing their focus on integratedness in the oil space, they are replacing it with a full-chain focus on LNG. This makes sense given the capital intensive nature of LNG, where controlling assets from gas fields to pipelines, liquefaction to regasification down to sales contracts, makes for a more powerful position to bargain, trade and secure financing. It also helps keep upstart trading companies at bay. Players like Glencore and Trafigura have been moving in on the LNG space recently, with Trafigura building LNG import terminals in Pakistan and Gunvor sealing a deal to buy the entirety of an Euqatorial Guinea LNG project. These are bits and pieces of a (profitable) puzzle, but supermajors like Shell and now Total have access to the whole board.

Total’s investment also comes with canny timing. While Shell undoubtedly overpaid for BG – the LNG industry was riding high at the time – Total’s acquisition of Engie’s assets come at a time when LNG prices are depressed. While Shell had to go on a selling spree to pay for its costly purchase of BG, Total has paid a relative bargain at US$1.5 billion. “We are seizing the opportunity to grow at a time when prices are low,” said Philippe Sauquet, head of Total’s gas, renewables and power business. When LNG prices start to rise again, which looks like post-2020 once the current glut is cleared, Total will be in a great position to capitalise. More LNG acquisition are likely underway, with Total aiming for the number 1 spot.

Estimated Top LNG Producers 2017/2018

Qatar Petroleum: 15%

Shell/BG: 12%

Total/Engie: 7%

ExxonMobil: 6.3%

Petronas: 6.1%

Chevron: 5.4%

Others: 48.5%

Read more:  NrgEdge

https://www.nrgedge.net/article/1511244795-the-lng-bandwagon-keeps-growing

@easwaran-17e9

Join in on the conversation with Easwaran when you subscribe to PEAK DEMAND.