Royal Dutch Shell plc (RDS.A - Free Report) recently shipped its first NGL cargo from the Prelude floating liquefied natural gas (FLNG) project in Australia. Notably, the flagship 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. Shell currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Prelude to Bolster Shell’s LNG Business
Prelude will handle the production, liquefaction, storage and transfer of LNG at sea, and processing, exporting and 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.
Shell, which is yet to export LNG from the project, certainly lags Malaysia’s Petronas FLNG facility, the first of its kind in the world. 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.
The $12.5-billion project is expected to generate cash flow from this year and boost Shell’s Integrated Gas business. Being a significant project in its portfolio, 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. Its position as a major supplier of LNG is anticipated to help the company meet the fuel’s growing demand and allow cash flow to grow further.
Shell’s Green Initiatives Getting Bigger
The energy supermajor, which acquired First Utility to lower its carbon footprint, now plans to rebrand the latter as Shell Energy Retail. Additionally, Shell declared that entire electricity supplied by First Utility will now come from renewable sources. This implies powering more than 700,000 U.K. homes with 100% renewable energy.
Shell is targeting to become the biggest electricity power company within the next 15 years. It will invest up to $2 billion per year in the New Energies division, primarily to enhance its position in the power sector, wherein it envisions 8-12% annual returns.
While renewable energy has long been considered as a niche market, things have been changing amid climate change concerns, with many energy giants being compelled to enhance their green initiatives. While U.S. energy biggies Chevron (CVX - Free Report) and ExxonMobil (XOM - Free Report) are slighting lagging behind in this department, European counterparts Shell, BP, Equinor (EQNR - Free Report) and TOTAL are betting big to expand their renewable foothold.
As we know, Shell became the first oil company to link executive pay with carbon emissions for combating climate change. The company has been on renewable acquisition spree of late, having collaborated with IONITY, New Motion, First Utility and Silicon Ranch, as it attempts to diversify its portfolio beyond oil and gas. Shell is also set to acquire Eneco, sonnen and Cleantech, emphasizing its increasing shift toward lower-carbon fuels. It has pledged to lower carbon emissions by 50% over the next five decades via sharpening its focus on renewables and biofuels.
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