Shell, an international oil company, announced on June 18th that it has reached an agreement with Temasek to acquire a 100% stake in Singapore's liquefied natural gas (LNG) trading company, Pavilion Energy. Both parties have not yet disclosed the specific financial details of the transaction.
Lanting Energy is a wholly-owned subsidiary of Singapore's state-owned investment company Temasek, with its global energy business covering LNG trade, shipping, natural gas supply and sales in Asia and Europe. The company has approximately 6.5 million tons/year of long-term LNG contracts, which come from energy giants such as Chevron (CVX. US), BP. US, and Qatar Energy.
Shell introduced that this transaction also includes Lanting Energy's long-term regasification capacity of approximately 2 million tons/year at Isle Grain liquefied natural gas terminals in the UK, its regasification channels in Singapore and Spain, and its LNG refueling business in Singapore, the world's largest ship refueling port.
"The acquisition of Lanting Energy will strengthen Shell's leadership position in the LNG sector, bringing significant resources and additional flexibility to our global investment portfolio," said Zo Yujnovich, Shell's Director of Integrated Natural Gas and Upstream Business. The acquisition includes more channels to enter the natural gas markets in Asia and Europe, allowing Shell to create value from this transaction and help meet customers' energy security needs.
The Asian market is an important part of Shell's natural gas strategy, and this transaction was reached ten years after Temasek established Lanting Energy to meet the growing energy demand in Asia and support energy transformation.
Shell predicts that as Southeast Asian countries accelerate the pace of coal to gas conversion, global LNG demand will increase by over 50% by 2040. In addition, LNG also plays an important role in energy transformation. On the one hand, it can replace coal power generation, reduce carbon emissions, and on the other hand, it can provide the flexibility required for the power system when renewable energy generation grows rapidly. To this end, Shell plans to expand its LNG business by 20-30% on the basis of 2022 by 2030, and purchase an additional 15% to 25% of LNG gas volume compared to 2022.
"This transaction exceeded Shell's internal rate of return threshold for its integrated natural gas business, achieving its procurement volume growth target of 15% to 25% increase compared to 2022," Shell stated in a statement on the same day.
It is worth noting that this acquisition will also drive Shell to expand its market share in the LNG refueling business. According to Argus, an energy consulting firm, according to data from the Singapore Maritime and Port Authority, the historical demand for LNG as fuel in Singapore ports reached 48000 tons in May, which is equivalent to the demand for biofuels. Currently, Shell and Lanting Energy each hold a Singapore LNG import license, with Shell supplying nearly 1/4 of Singapore's natural gas demand; The other two license holders are ExxonMobil (XOM. US) and Singapore's Sembcorp Fuels.
According to the statement, the pipeline natural gas contract signed between Lanting Energy and its power industry clients is not within the scope of this transaction and will be transferred to Gas Supply Pte Ltd (GSPL), a wholly-owned subsidiary of Temasek, before the completion of the transaction. In addition, Lanting Energy's 20% equity in Block 1 and Block 4 of Tanzania is also not included in this transaction.
It is reported that this transaction will be completed in the first quarter of next year, but approval from regulatory authorities and other prerequisites must be met. Prior to this, Lanting Energy will continue to operate as an independent business of Temasek.