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Shell has agreed to buy liquefied natural gas trader Pavilion Energy from Singaporean investment fund Temasek, seeing off competition from Saudi Aramco as it seeks to strengthen its grip on the market.
The energy major is betting that LNG demand will grow in coming years as China and developing economies rely on it as a transition fuel given it is comparatively cleaner than other fossil fuels.
Temasek set up Pavilion Energy in 2013 to tap growing demand for LNG in Asia, injecting an initial $1bn. The business supplies more than one-third of Singapore’s power and industrial gas demand with LNG and piped natural gas.
The purchase “will strengthen Shell’s leadership position in LNG, bringing material volumes and additional flexibility into our global portfolio”, said Zoë Yujnovich, Shell’s integrated gas and upstream director, on Tuesday.
Pavilion reported a post-tax profit of $438mn in the 12 months to March 2023, reversing a loss of $666mn in the previous financial year, according to Temasek’s website.
Shell and Temasek did not disclose the purchase price, but the Singaporean fund valued the business at $3.63bn at the end of March 2023. However, the deal value is lower as it excludes Pavilion’s stake in a gas project in Tanzania, according to a person familiar with the matter.
Saudi Aramco, which is seeking to expand its LNG business, did not immediately respond to a request for comment.
Pavilion, which acquired Iberdrola’s LNG business in 2019, has a series of long-term contracts to receive about 6.5mn tonnes per year. Shell currently sells almost 70mn tonnes of LNG a year.
Shell has ambitions to grow its LNG it purchases by 20 to 30 per cent by 2030, compared with 2022 levels. The acquisition of Pavilion “is expected to help deliver these targets”, it said.
Shell will also take over the Singaporean firm’s licence to import the fuel into Singapore and its access to import terminals in the UK and Spain.
Energy companies, including Shell, have made billions of dollars from the LNG business since Russia’s full scale invasion of Ukraine, which prompted the Kremlin to slash the amount of gas it sends via pipeline to Europe. As a response, Europe has turned to LNG, which is transported by specialised ships.
While natural gas is cleaner than other fossil fuels, it still releases substantial amounts of carbon dioxide when burnt. Natural gas is also mostly composed of methane, which generates more warming than carbon dioxide but is shorter-lived.