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How Is Royal Dutch Shell plc (ADR) Increasing Its Exposure In The …

On Thursday, January 7, a Royal Dutch Shell plc (ADR) (NYSE:RDS.A[1]) led consortium received a 40-year export license for its liquefied natural gas (LNG) plant in the Pacific coast of Canada. Wall Street Journal (WSJ) reported that the request for approval for the LNG Canada project was submitted in July 2015, and following a detailed-review, the Canadian National Energy Board (NEB) has now granted the permission for it. The license issued to the LNG project is the longest duration permit ever granted by Canadian regulatory authorities. A number of projects, which aimed at exporting LNG to Asia and other emerging markets, have been proposed by many Canadian energy companies. However, because of the high costs of building the LNG projects in the area, and the tough regulatory approval process, none of the projects have started yet.

The news of the approval comes at a time when Shell and other energy corporations are struggling with low oil and gas prices. Crude oil prices have plunged more than 70% since June 2014. At that time, Brent and West Texas Intermediate (WTI) were trading at around $110 per barrel. However, the global oil benchmark is now trading at $33.84 per barrel, while the WTI is hovering at around $33 per barrel. Low oil prices adversely affected the Hague-Based energy corporation s financial position and stock performance last year. It reported a net loss of $6.1 billion, while during the same time last year, this figure was a net profit of $5.3 billion. Meanwhile, its stock prices dropped 31% in 2015. This under-performance is likely to continue, as the commodity market bounces back. Though LNG prices are also experiencing low spot-market prices, Shell is optimistic that the industry will see a boost owing to increased LNG demand in future. Shell’s $70 billion merger with BG Group is also expected to give it a strong foothold in the LNG market. Moreover, as crude oil prices are not showing any sign of recovery, other energy companies, including Chevron Corporation (NYSE:CVX[2]), are also increasing their exposure in the LNG market. Chevron completed its Gorgon and Wheatstone LNG projects in Australia last year. The first shipment from the plants will take place later this year. LNG Canada CEO Andy Calitz said the project would improve its competitiveness, and position it better against international rivals. Shell is expecting the export from the terminal to stand at around 3.7 billion cubic feet LNG per day, and 1.34 trillion cubic feet annually.

LNG Canada terminal construction will take almost 5 years, and cost around $28 billion or CAD$40 billion. The plant will become capable of producing and exporting liquid natural gas by 2022. Mr. Calitz said the company will take the decision on whether to proceed with the construction of the facility, later this year.

Despite recent developments, Shell stock is trading down 3.13% at $40.80 at 10:40 AM EST today. The stock has lost around 11% of its value in the past five days, as crude oil prices touched their multi-year low.


  1. ^ NYSE:RDS.A (www.bidnessetc.com)
  2. ^ NYSE:CVX (www.bidnessetc.com)

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