Shell is about to massively increase its exposure to the liquefied natural gas (LNG) market just as profits in the sector dive, according to new figures from BG.
BG – the former international exploration and production arm of British Gas, which will become part of Shell in 10 days in a $35bn (£24bn) merger – ramped up its LNG shipments by nearly 60% in 2015, only to see earnings from this side of its business plunge by 67%.
BG reported underlying total group earnings during the fourth quarter down 54% at $423m (£291m) and annual profits 58% down, at $1.7bn (£1.17bn).
Helge Lund, chief executive of BG, said he was pleased “to have delivered an excellent operational performance in 2015 in line with, or ahead of, our guidance for the year”.
He also revealed that the company had delivered 282 LNG cargoes in 2015, with new capacity coming on stream from Queensland, Australia “in difficult market conditions”.
The problem for BG, Shell and others is that LNG shipments are delivered under longterm supply contracts, but the price is usually linked to a spot oil price – which has been in freefall over the last year.
In recent days the price of oil has recovered slightly from $32 (£22) per barrel to above $34 (£23), but traders remain wary of a supply glut at a time when economic growth in China and other major markets is faltering.
Shell was already the biggest LNG provider among the large international oil companies, with its output set to rise by a round a third with the BG takeover.
The Anglo-Dutch group reported earlier this week that its own group annual profits had fallen by 87%. Chief executive Ben van Beurden promised to divest $30bn (£21bn) of assets and cut 2,800 more jobs once the BG completes on 15 February.