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Shell (RDS.A) Lands 15-Year Kuwait Petroleum LNG Contract

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In a bid to address Kuwait’s growing gas demand, Kuwait Petroleum Corporation recently inked a 15-year deal to import liquefied natural gas (LNG) with Royal Dutch Shell plc . The sales purchase agreement will commence in 2020 and will supply 2-3 million metric tons of LNG a year to the Arabian Gulf state. The volumes delivered under the contract will be used to make Kuwait Petroleum’s power stations operational. The value of the deal has been kept under wraps.

Shell’s association with Kuwait Petroleum dates back to 2010 when it had signed a four-year contract with the latter for the supply of LNG cargoes. Kuwait Petroleum inked another four-year contract worth $12 billion with Shell in 2014. Post 2020, Kuwait Petroleum intends to boost its long-term LNG supply deals with various companies to import 6-7 million tons of LNG a year.

Though the nation is rich in crude oil — with around 7% of the world’s proven crude oil reserves — Kuwait’s natural gas production is quite low. Also, reliance on a single commodity poses challenges for the energy sector and the whole economy as well.  In an attempt to diversify its oil-dependent economy, Kuwait is taking initiatives to develop its natural gas fields and boost production. Further, Kuwait also intends to increase its focus on cleaner energy sources like natural gas to reduce emissions and improve air quality amid global environment concerns.  

The country is dependent on imports of LNG for both power generation and its petrochemicals industry. Increased production of gas will increase Kuwait’s feedstock for its staggering electricity sector, which frequently fails to generate enough electricity to meet peak demand. It will also help to meet domestic demand for power to run air conditioners during summer and save the crude oil for exports. The company aims to achieve production of 4 Bcf/d of gas by 2030, however political and regulatory hurdles pose a challenge.

Thus, even though the nation is ramping up its gas production of late, the burgeoning demand still outweighs its domestic output and thus Kuwait has to rely on imports. Kuwait imported 3.49 million metric tons of LNG in 2016 to bridge the gap between natural gas production and consumption. Further, import of LNG happens to be a cheaper option and also frees up oil for export which constitutes majority of the export revenues of the nation.

Zacks Rank & Key Picks

Headquartered in Netherlands, Shell is one of the largest integrated energy companies engaged in production, refining, distribution and marketing of oil and natural gas. The company currently carries a Zacks Rank #3 (Hold).

Royal Dutch Shell PLC Price

 

 

A few better-ranked players in the same industry are Statoil ASA , Chevron Corporation (CVX - Free Report) and PetroChina Company Limited . While Statoil sports a Zacks Rank #1 (Strong Buy), Chevron and PetroChina carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Statoil delivered a positive earnings surprise of 13.64% in the last quarter.

Chevron delivered an average positive earnings surprise of 1.77% in the trailing four quarters.

PetroChina delivered an average positive earnings surprise of 27.44% in the trailing four quarters.

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