Shell has successfully secured the acquisition of Pavilion Energy, a liquefied natural gas (LNG) trader, from Singaporean investment fund Temasek, outmaneuvering rival Saudi Aramco in a strategic move to bolster its influence in the LNG market.
Strategic Investment in LNG’s Future
The energy giant is placing a significant bet on the continued growth of LNG demand in the coming years, particularly in China and developing economies, where it is anticipated to play a crucial role as a transition fuel due to its relative cleanliness compared to other fossil fuels.
Temasek established Pavilion Energy in 2013, with an initial investment of $1 billion, to capitalize on the escalating demand for LNG in Asia. The company currently supplies over one-third of Singapore’s power and industrial gas requirements with LNG and piped natural gas.
Strengthening Shell’s Global LNG Portfolio
Zoë Yujnovich, Shell’s Integrated Gas and Upstream Director, stated on Tuesday that the acquisition will solidify Shell’s leading position in LNG, providing substantial additional volumes and flexibility to its global portfolio.
Pavilion Energy reported a post-tax profit of $438 million for the 12 months ending in March 2023, a remarkable turnaround from the $666 million loss incurred in the previous fiscal year, as per information available on Temasek’s website.
Deal Details and Valuation
While Shell and Temasek refrained from disclosing the purchase price, Temasek valued Pavilion Energy at $3.63 billion as of March 2023.
However, the actual transaction value is expected to be lower as it excludes Pavilion’s stake in a gas project in Tanzania, according to an insider familiar with the matter. Saudi Aramco, actively seeking to expand its LNG operations, has not yet provided a comment on the acquisition.
Expanding LNG Capacity and Contracts
Pavilion Energy, which acquired Iberdrola’s LNG business in 2019, holds a series of long-term contracts to receive approximately 6.5 million tonnes of LNG annually. Shell, on the other hand, currently sells nearly 70 million tonnes of LNG per year.
The company aims to increase its LNG procurement by 20 to 30 percent by 2030 compared to 2022 levels, and the acquisition of Pavilion is anticipated to contribute significantly to achieving this target.
Strategic Assets and Market Access
In addition to bolstering its LNG capacity, Shell will also acquire Pavilion Energy’s license to import LNG into Singapore and gain access to import terminals in both the UK and Spain.
Energy companies, including Shell, have reaped substantial profits from the LNG business since Russia’s full-scale invasion of Ukraine, which led to a drastic reduction in gas supplies to Europe via pipeline. In response, Europe has increasingly turned to LNG, transported by specialized vessels.
Environmental Considerations and Future Outlook
While natural gas is considered cleaner than other fossil fuels, it still releases a significant amount of carbon dioxide when burned. Moreover, natural gas is primarily composed of methane, which, despite its shorter lifespan, contributes more to global warming than carbon dioxide.