Shell signs agreement to acquire Singapore's LNG Trader Pavilion Energy

[escveritas]

18 June 2024

Singapore − Shell Eastern Trading Pte. Ltd., a subsidiary of Shell plc, has reached an agreement with Carne Investments Pte. Ltd., an indirect wholly-owned subsidiary of Temasek, to acquire 100% of the shares in Pavilion Energy Pte. Ltd. Pavilion Energy includes a global liquefied natural gas (LNG) trading business with a contracted supply volume comprising about 6.5 million tonnes per annum (mtpa).

Headquartered in Singapore, Pavilion Energy’s global energy business encompasses LNG trading, shipping, natural gas supply and marketing activities in Asia and Europe. Pavilion Energy’s portfolio comprises about 6.5 mtpa of its long-term sale and supply LNG contracts. It also includes long-term regasification capacity of approximately 2 mtpa at the Isle Grain LNG terminal (United Kingdom), regasification access in Singapore and Spain, as well as the time-charter of three M-type, Electronically Controlled Gas Injection (MEGI) LNG vessels and two Tri-Fuel Diesel Electric (TFDE) vessels. It also has a LNG bunkering business with its first vessel deployed in early 2024.

“The acquisition of Pavilion Energy will strengthen Shell’s leadership position in LNG, bringing material volumes and additional flexibility into our global portfolio,” said Zoë Yujnovich, Shell’s Integrated Gas and Upstream Director. “We will acquire Pavilion’s portfolio of LNG offtake and supply contracts, which includes additional access to strategic gas markets in Asia and Europe. By integrating these into Shell’s global LNG portfolio, Shell is strongly positioned to deliver value from this transaction while helping to meet the energy security needs of our customers.”

Shell believes LNG will play a critical role in the energy transition, replacing coal in heavy industry. It also has a continued role in displacing coal in power generation, helping to reduce local air pollution and carbon emissions. LNG helps to provide the flexibility the power system needs, at a time when renewable generation is growing rapidly. Find out more in Shell’s Energy Transition Strategy 2024.

Shell plans to grow its LNG business by 20-30% by 2030, compared with 2022, and purchased LNG volumes are planned to grow by 15-25%, relative to 2022, as outlined in the 2023 Capital Markets Day. This transaction is expected to help deliver these targets.

The acquisition will be absorbed within Shell’s cash capital expenditure guidance, which remains unchanged. The deal is in excess of the internal rate of return (IRR) hurdle rate for Shell’s Integrated Gas business, delivering on its 15-25% growth ambition for purchased volumes, relative to 2022, as outlined during the 2023 Capital Markets Day.

Integration of portfolios will commence after completion of the deal, which is expected by Q1 2025, subject to regulatory approvals and fulfilment of other conditions precedent. Global demand for LNG is estimated to rise by more than 50% by 2040, as industrial coal-to-gas switching gathers pace in China, South Asian and South-east Asian countries. These countries are expected to use more LNG to support their economic growth, according to Shell’s LNG Outlook 2024

Pavilion Energy’s pipeline gas business however is not included as part of the transaction and will be transferred to Gas Supply Pte Ltd (GSPL), a wholly-owned subsidiary of Temasek, prior to completion. Pavilion Energy’s 20% shareholding in block 1 and 4 in Tanzania are also not included in the transaction.

Shell, via its BG acquisition, holds the first LNG importing license to Singapore, supplying nearly a quarter of the country’s natural gas needs. For more than 10 years, Shell has brought LNG to Singapore and other markets in Asia reliably and competitively, trading in LNG, Crude, Oil products and other energy commodities to serve customers across Asia, actively contributing to the region’s energy supply security. Shell is a pioneer in developing LNG as a marine fuel for bunkering in Singapore.