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Shell Brings Prelude Facility Online, Ups Renewable Spending

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Royal Dutch Shell plc (RDS.A - Free Report) recently achieved a milestone by commencing production yesterday from its flagship project, Prelude floating liquefied natural gas (FLNG) facility in Australia. However, the timing of first LNG export from Prelude is still uncertain. Notably, the project is a joint venture among Shell, Inpex Corporation, Korea Gas Corporation and Taiwan’s CPC Corporation, with Shell being the chief operator, owning a 67.5% stake in the project.

Prelude, which is the world’s biggest floating gas-export vessel, is likely to further solidify Australia’s position as the top LNG exporter. Markedly, Australia recently overtook Qatar as the world’s biggest LNG exporter, courtesy of the start-up of various export projects in the past three years, including the Ichthys project that shipped its first cargo in October 2018.

Notably, the Prelude project has been grappling with ballooning capital cost due to challenges and delays in the construction of the complex vessel since 2012. Nonetheless, final preparation for the project to come online has been ongoing since June 2018, when Shell introduced gas to the FLNG unit as part of the cooling process.

Prelude to Further Bolster Shell’s LNG Business

Prelude will handle the production, liquefaction, storage and transfer of LNG at sea, as well as processing, exporting along with condensation of liquefied petroleum gas. The facility has a production capacity of around 5.3 million tons per annum (mtpa) of liquids, with LNG accounting for 3.6 mtpa or 68% of the total capacity. The $12.5-billion project is expected to generate cash flow from the next year and boost Shell’s Integrated Gas business.

Being a significant project in the portfolio of Shell, Prelude FLNG is a path-breaking facility for the emergence of floating LNG. Notably, it is also the first and the most versatile in the line of projects planned by the company. The facility will enable Shell to unlock new offshore energy sources and provide LNG around the world.

As it is, the $50-billion buyout of BG Group has diversified Shell’s portfolio, making it one of the leading producers of LNG. With LNG demand likely to rise to around 500 million tons per annum by 2030 on the back of strong consumption from Asian importers like China, South Korea and India, Shell’s position as a major supplier of LNG should help the company meet the fuel’s growing demand and allow cash flow to grow further. In this regard, the Zacks Rank #3 (Hold) company made its final investment decision on the LNG Canada project this year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Shell’s Green Initiatives to Get Bigger

In another update about the company, Shell is reportedly set to double its investments in renewables to $4 billion. Notably, in line with climate change concerns, Shell had earlier announced its decision to invest up to $2 billion per year till 2020 in its New Energies division, which will serve as a hedge for reduced gasoline and diesel fuel demand. The company now intends to further ramp up its clean energy investments (which account for one third of the company’s top line) and has thus doubled its maximum annual spending quota in the New Energies division.  

Shell has been on an acquisition spree of late, having collaborated with IONITY, New Motion, First Utility, Silicon Ranch and Cleantech, as it attempts to diversify its portfolio beyond oil and gas. With renewable energy becoming affordable, the oil conglomerate sees immense potential in developing projects like hydrogen fuel-cells, alternative energies, liquefied natural gas and next-generation biofuels. As the company sharpens focus on renewables and biofuels, Shell has pledged to lower its carbon emissions by 50% over the next five decades.

Recently, Shell announced the decision to link remunerations of its executives with targets for carbon reduction initiatives. This step of fixing high-level employees’ compensations is the first time by any energy company to combat climate change.

Amid climate change concerns, other big oil companies like TOTAL SA (TOT - Free Report) , Equinor ASA (EQNR - Free Report) , BP plc (BP - Free Report) , Exxon Mobil Corporation and Chevron Corporation have also started reorienting their strategies to de-carbonize the energy system via increasingly shifting to alternative fuels.

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