Shell's $6 Billion Deal with Repsol Crowns LNG King

Shell this week plopped down $6 billion to take a stake in the growing market for liquefied natural gas from Spanish energy company Repsol (REP.SM). Technology used to get natural gas out of the pipeline and into a super-cooled form easy to deliver is making cleaner-burning gas a global commodity alongside oil. Shell's purchase not only gives Repsol some room to maneuver from its debt burden, but shows supermajors are standing up to take notice of the growing market trend.

Shell (NYSE: RDS.A) this week said it was taking on part of Repsol's LNG portfolio in a deal that included more than $4 billion in cash and more than $2 billion in assumed debt. For Shell, the acquisition of more than 7 million tons of LNG per year adds to what top boss Peter Voser said was a world-class position. For Repsol, it's a chance to recover after Argentine President Cristina Fernandez de Kirchner nationalized energy company YPF, its biggest foreign asset.

"The deal strengthens the company's balance sheet and financial position, advancing the goal of reinforcing its credit ratings, and reduces Repsol's net debt by more than half to $2.8 billion," the Spanish company said.

Early this week, the world's largest natural gas producer, Gazprom, said it was tapping into the Middle East market for LNG by reaching a deal with the developers of the Tamar natural gas field off the Israeli coast. Tamar is estimated to hold close to 10 trillion cubic feet of natural and the Delek Group working there said there would still be enough gas for the domestic Israeli market.

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Israel, in the wake of the Egyptian revolution in 2011, saw some of its gas supplies cut off when militants launched repeated attacks on a pipeline in the Sinai Peninsula. Gazprom, meanwhile, is facing anti-trust action for a European Union wary of its relationship with transit nations like Ukraine. Gazprom gets about 80 percents of its revenue from Europe and pipelines are its main conduit for natural gas.

And the list goes on. The Canadian government of Prime Minister Stephen Harper is trying to court Asian investors to an energy market that counts the United States as its dominant trading partner in that sector. Early this month, the government there signed off on an export license for LNG Canada Development Inc. to deliver more than 650 million tons of LNG out of a planned export terminal in British Columbia over the next 25 years. That's the equivalent of shipping nearly 1.3 trillion cubic feet per year by conventional pipe. With few options of its own, meanwhile, the shale natural gas boom in the United States is giving lawmakers and those in the energy industry reason to press the Department of Energy to get on the LNG bandwagon. Not to be outdone, Gazprom said Wednesday it was discussing LNG options with China National Petroleum Corp., one of the largest energy companies in the world.

Last year, a report commissioned by the U.S. Energy Department found that, for every market scenario examined, the greater the volume of LNG exports, the greater the economic gain. For overseas economies, and for those in Canada, the lure of LNG extends far beyond the reach of any international pipeline.

By. Daniel J. Graeber of Oilprice.com