August 29, 2011
The demand for natural gas is set to soar over the next few years given the ever-growing global requirement for energy and more stringent safety regulations in the wake of recent mishaps. Liquefied natural gas (LNG) accounts for about 30% of all natural gas business, and the worldwide LNG market is expected to approximately triple in volume from 2005 to 2030. Royal Dutch Shell (NYSE: RDS-A ) (NYSE: RDS-B ) , which has already been dominating the natural gas space, is now expanding on that larger initiative.
Arrow Energy, Shell's joint venture with PetroChina (NYSE: PTR ) , plans to secure its footing in the LNG business by expanding its existing projects. The coal-seam gas (CSG) explorer and producer wants to increase the size of its two LNG processing units by acquiring Brisbane, Australia-based Bow Energy. Arrow has offered $540 million. This transaction would support Shell's growing export terminal, as it doesn't have enough CSG reserves in the region. Bow has increased its reserves to 238 petajoules and management expects it to further increase to 1,250 petajoules in 2012. This would also help Shell consolidate its LNG operations in Australia.
Gearing up for the natural gas play
As I said above, the worldwide liquefied natural gas market is expected to approximately triple in volume from 2005 to 2030. Shell has been fortifying its operations and expanding in the right places. Its groundbreaking Prelude Floating LNG project will definitely help it stay ahead of the game. It will have a capacity of 3.6 million tonnes a year. Asia will be the chief importer, where LNG demand is set to double this decade.
The Foolish bottom line
Although Shell has an edge in the natural gas play owing to its massive size and presence, it faces stiff competition from Big Oil companies such as Chevron (NYSE: CVX ) and ExxonMobil (NYSE: XOM ) . Although the acquisition of Bow Energy is not a very huge deal on an absolute basis, it would definitely complement the company's efforts.