LNG

UK major Shell plc posted the company’s highest ever annual profits helped by record natural gas prices as its LNG sales volumes also increased during the quarter and for the full year.

QatarEnergy has selected UK major Shell as the second international partner for the LNG expansion known as the North Field South (NFS) liquefaction and export joint venture.

Sept 15 (LNGJ) - UK major Shell plc confirmed that Chief Executive Ben van Beurden would step down at the end of 2022 and named his successor as Lebanese-born Wael Sawan, who is currently the Head of Integrated Gas, Renewables and Energy Solutions and was previously in charge of Shell’s Upstream division. Sawan has been 25 years at Shell and is a dual Lebanese-Canadian national.

   He grew up in Dubai in the United Arab Emirates and holds a Master’s degree in Chemical Engineering from McGill University in Montreal and an MBA from Harvard Business School. “Wael’s appointment is effective January 1, 2023, when he will also join Shell’s Board. Ben van Beurden will continue working as adviser to the Board until June 30, 2023, after which he will leave the group,” said Shell. Van Beurden became CEO in 2014 and had begun in the company as an LNG design engineer.

Japanese trading houses and energy companies Mitsui & Co. and Mitsubishi Corp. have formally joined the new operating company for the Sakhalin II LNG export plant in the Russian Far East.

A Russian statement said Mitsui and Mitsubishi have taken stakes of 12.5 percent and 10 percent respectively in the new operating company, Sakhalinskaya Energia.

The former operating company Sakhalin Energy had Gazprom as the majority shareholder with 50 percent plus one share while Shell had 27.5 percent of the shares and Mitsui and Mitsubishi 12.5 percent and 10 percent, which they now hold in the new company.

Shell decided to withdraw from operations in Russia after the invasion of Ukraine, though its exit path from Sakhalin LNG is not clear and the shareholding could eventually revert to Gazprom.

After the Shell pull-out, Russian President Vladimir Putin ordered in June 2022 that the Sakhalin LNG company’s assets be expropriated and passed on to a new entity.

In the latest statement, the Russians cited Shell Chief Executive Ben van Beurden as saying on July 28: “It's highly unlikely that we will become a member of a Russian legal entity to which our share in Sakhalin Energy may be transferred. It's not consistent with our intention to keep our assets in Russia. It creates a little bit more uncertainty about how exactly we will exit.”

The Sakhalin plant began LNG exports in 2009 and has annual capacity from its two Trains of around 10 million tonnes per annum with shipments going to Japan and South Korea.

Concerns

The Japanese government has backed Mitsui and Mitsubishi in retaining their Sakhalin LNG stakes and officials were cited as saying that potential Chinese shareholders could replace the Tokyo-based companies.

“In accordance with the notification of Mitsubishi Corp. on the consent to take ownership of a share in the authorized capital it will be transferred to a fully owned subsidiary of Mitsubishi,” said the Russian statement.

The previous Mitsubishi share in the Sakhalin plant was held by its subsidiary Diamond Gas Sakhalin and a 10 percent stake has been passed to it.

The Russian statement added that the 12.5 percent stake of Mitsui had been transferred to a company subsidiary registered in Dubai in the United Arab Emirates and called MIT SEL Investment.

The new Sakhalinskaya Energia company was incorporated in the capital of Sakhalin Island, Yuzhno-Sakhalinsk, in August 2022 and Gazprom was assigned its majority shareholding from the previous operating company.

Shell Chief Executive Ben van Beurden said there was no swift solution to Europe’s current energy crisis and the region would face significant challenges in meeting demand for several winters to come.

“I do not think this crisis is going to be limited to just one winter,” Ben van Beurden said at the Offshore Northern Seas (ONS) Foundation 2022 conference in Stavanger, Norway.

“It may well be that we have a number of winters where we have to somehow find solutions through efficiency savings, through rationing, and through a very quick build out of alternative gas imports or hopefully alternative energy sources,” said the Shell CEO.

His comments come after European natural gas and power futures contracts soared again to record highs and LNG cargoes are now priced at more than $300 million each.

Prices have surged since Russia’s invasion of Ukraine in February 2022, though they were already moving higher amid fears of gas shortages after the European Union’s halting of the start-up of the Gazprom-led Nord Stream II gas pipeline from Russia about four months before the Ukraine events.

About-turn

Analysts said that Van Beurden’s statement was a timely intervention though he has been among the majority group of energy CEOs, bankers and political leaders who have jumped on the net-zero bandwagon without making sure or emphasizing that sufficient oil and gas would have to be available in the years ahead before an energy transition is completed.

Even though the EU aims to reduce gas imports from Russia by two-thirds within a year and be virtually independent in five years, the 27-nation bloc is still reliant on Russian supplies in the near term.

“If there was no Russian gas supply at all life would be very hard,” stated Van Beurden whose company was shut Russian operations, including pulling out of the Sakhalin II LNG export plant in the Russian Far East.

Van Beurden said people should be mindful and responsible when it comes to the energy crisis and to understand that to believe that it could easily be solved was a “fantasy”.

The Shell CEO told the Norwegian conference that energy rationing may be needed for a number of years, underlining the scale of the challenge facing global economies.

Musk warning

Another speaker at the Norwegian conference was Elon Musk, the billionaire head of Tesla, the US multinational automotive and clean energy company headquartered in Austin, Texas.

Musk said “civilisation will crumble” without oil and gas as he warned the switch to green energy could take several decades.

He stated that the world needed to continue extracting oil and gas while it builds out renewable energy.

Musk declared that the current global energy crisis and the transition to sustainable energy was “one of the biggest challenges the world has ever faced”.

“Realistically I think we need to use oil and gas in the short term, because otherwise civilization will crumble. One of the biggest challenges the world has ever faced is the transition to sustainable energy and to a sustainable economy. That will take some decades to complete,” he explained.

July 7 (LNG) - Shell, whose annual LNG sales amount to almost 70 million tonnes per annum, has updated its earnings forecast for its four divisions for the the second quarter, lowering expectations for LNG and gas trading earnings and with one-off hits from sanctions against Russia. Shell said that in the Integrated Gas division, including LNG, production was expected to be between 930,000 and 980,000 barrels of oil equivalent per day.

   “Sakhalin results derecognition is expected to have a negative impact of $300 million to $350M,” it added. “Trading and optimisation results for Integrated Gas are expected to be lower compared to the first quarter 2022, which had exceptional trading optimisation opportunities,” stated Shell. In the adjusted earnings pre-tax depreciation in the division was expected to be between $1.3 billion and $1.5Bln. In the Upstream division, pre-tax depreciation was expected to be between $2.9Bln and $3.3Bln.

Shell has been selected by QatarEnergy as a fifth partner in the North Field East expansion project in Qatar, described by Shell as the single largest project in the history of the liquefied natural gas industry.

Shell said it would hold a 25 percent share in a joint venture company which will own 25 percent of part of the North Field East project, including the four mega-Trains for processing a combined nameplate LNG capacity of 32 million tonnes per annum.

Shell said its investment in this LNG expansion would support delivery of much-needed supplies of natural gas to markets around the world.

“I am honoured that Shell has been selected by QatarEnergy. Through its pioneering integration with carbon capture and storage, this landmark project will help provide LNG the world urgently needs,” declared Shell Chief Executive Ben van Beurden.

“This agreement deepens our strategic partnership with QatarEnergy which includes multiple international partnerships such as the world-class Pearl GTL asset,” added Van Beurden.

“We are committed to maximize the value of the LNG expansion for the State of Qatar and continue to be a trusted, reliable and long-term partner in Qatar’s continued progress,” he stated.

ExxonMobil role

ExxonMobil Corp., the long-standing partner of Qatar in oil and gas and LNG, was chosen in June to be the fourth signatory of a joint venture stake in the North Field East expansion.

ExxonMobil, like Shell, was awarded a 25 percent interest in the fourth North Field East joint venture that will take QatarEnergy’s overall output to 110 million tonnes per annum from 77 MTPA.

The US major has had a presence in Qatar since 1955 and has long supported the development of the country’s LNG industry and energy sector.

QatarEnergy and ExxonMobil are also partners in the current transformation of the Golden Pass LNG import terminal on the Sabine-Neches Waterway in Texas into an export plant.

The terms for Qatar's NFE expansion joint ventures with Shell and ExxonMobil are the same as those given to the other three shareholders named earlier, France’s TotalEnergies, Italy’s Eni and US major ConocoPhillips.

The expansion of North Field East and increased LNG export capacity is one of Qatar’s key energy objectives.

QatarEnergy is the operator and commenced the North Field East project in 2019. First LNG from North Field East is expected in 2026.

The upstream part of the project is already under way to develop the southeast area of the North Field via eight platforms, 80 wells and gas pipelines to the onshore liquefaction plant.

Shell reported an almost three-fold jump in earnings to $9.1 billion compared with $3.2Bln in the same three months of 2021 as quarterly LNG sales increased along with oil and refined product prices.

Shell plc, the leading LNG trader and oil and gas major, has issued a profits warnings saying that first-quarter 2022 results would include the post-tax impact of between $4 billion and $5 billion from impairments of non-current assets and additional charges relating to Russia activities.

UK major Shell plc said it intended to withdraw from involvement in all Russian hydrocarbons, including crude oil, petroleum products, gas and liquefied natural gas in a phased manner, aligned with new government guidance.

The now London-based company said that as an immediate first step, it would stop all spot purchases of Russian crude oil and would close its filling stations as well as jet fuel and lubricants operations in Russia.

The latest Shell statement follows last week’s moves to end involvement in the Nord Stream II natural gas pipeline project and to exit its equity partnerships with Russian gas giant Gazprom and related entities.

These included ending its 27.5 percent stake shareholdings in the Sakhalin-II LNG export facility in the Russian Far East, its 50 percent stake in the Salym Petroleum Development and the Gydan energy venture.

“We are acutely aware that our decision last week to purchase a cargo of Russian crude oil to be refined into products like petrol and diesel - despite being made with security of supplies at the forefront of our thinking - was not the right one and we are sorry,” declared Shell Chief Executive Ben van Beurden.

“As we have already said, we will commit profits from the limited, remaining amounts of Russian oil we will process to a dedicated fund,” he added.

“We will work with aid partners and humanitarian agencies over the coming days and weeks to determine where the monies from this fund are best placed to alleviate the terrible consequences that this war is having on the people of Ukraine,” stated Van Beurden.

Discussions

Shell also explained that its actions to date had been guided by “continuous discussions with governments” about the need to disentangle society from Russian energy flows, while maintaining energy supplies.

The company said that threats to stop pipeline flows to Europe further illustrated the “difficult choices and potential consequences” that are being faced.

Shell plans to immediately stop buying Russian crude oil on the spot market and we will not renew term contracts.

“At the same time, in close consultation with governments, we are changing our crude oil supply chain to remove Russian volumes,” said the company.

“We will do this as fast as possible, but the physical location and availability of alternatives mean this could take weeks to complete and will lead to reduced throughput at some of our refineries,” it added.

Shell is now implementing a “phased withdrawal” from Russian petroleum products, pipeline gas and LNG.

“This is a complex challenge. Changing this part of the energy system will require concerted action by governments, energy suppliers and customers, and a transition to other energy supplies will take much longer,” it stated.

Van Beurden also declared that ultimately, it was for governments to decide on the “incredibly difficult trade-offs” that must be made during the war in Ukraine.

“We will continue to work with them to help manage the potential impacts on the security of energy supplies, particularly in Europe,” the CEO concluded.