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Shell to Export LNG Jointly

by Zacks Equity Research

January 29, 2013 | Comments : 0 Recommended this article: (0)

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Shell US Gas & Power LLC – a subsidiary of Royal Dutch Shell plc ( RDS.A - Analyst Report ) – Southern Liquefaction Company, LLC – subsidiary of Kinder Morgan Inc ( KMI - Analyst Report ) – and a unit of El Paso Pipeline Partners, L.P. ( EPB - Snapshot Report ) announced their plan to jointly form a limited liability company. The new entity will develop an export-ready natural gas liquefaction plant at a shipping terminal near Savannah, Georgia.

Upon corporate and regulatory approvals, the newly formed company will use El Paso's existing pipeline and terminal infrastructure to modify its Elba Express Pipeline and Elba Island LNG Terminal. The developed facility will export liquefied natural gas (LNG) by ship. A small-scale liquefaction unit of Shell will be included with the existing Elba Island facility to facilitate speedy construction.
Per the deal, Kinder Morgan owned El Paso will have a 51% stake in the new company and operate the facility. Shell will have the remaining 49% stake and 100% of the liquefaction capacity. It is estimated that the facility will have a capacity of 2.5 million tons per year upon completion.
The Free Trade Agreement approval has been sanctioned to the project and the non-Free Trade Agreement approval is also expected soon. Management at Shell believes that this deal will meet the world’s growing energy requirement and boost the U.S. economy.
In terms of assets, Royal Dutch Shell owns a strong and diversified portfolio of global energy businesses that offer attractive long-term growth opportunities. The group’s strong inventory of development projects and increased capital expenditures should help volume growth in the long run.
However, Royal Dutch Shell conducts operations in many countries. As such, the group is exposed to risks associated with doing business abroad. Such risks include embargoes and/or expropriation of assets, exchange rate risks, terrorism and political/civil sentiment.
Royal Dutch Shell currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months. Another oil company Total SA ( TOT - Analyst Report ) having a Zacks Rank #2 (Buy) is also expected to perform in line with the market.

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