Royal Dutch Shell Plc on 8 April 2015 acquired BG Group for about 70 billion US dollar. The deal would vault Shell far ahead of rivals like Exxon Mobil Corp and Chevron Corp. in the race to build market share for Liquefied Natural Gas (LNG).
The deal marks the most aggressive step yet in the competition to be the world’s dominant supplier of LNG.
LNG is a chilled form of natural gas used for electricity generation and home heating.
The acquisition is a bet that countries like China, India and others in the developing world will move toward cleaner burning fuels like natural gas instead of coal amid growing pressure to curb emissions.
The rival firm Exxon Mobil, estimates that the global trade in liquefied natural gas will more than triple through 2040, to nearly 100 billion cubic feet a day—roughly 40% higher than current U.S. gas output.
The company projects that countries throughout Asia and the Pacific will import half of the gas they consume by 2040, with LNG making up 80% of imports.
Building up its LNG business would also give Shell some insulation from volatile oil prices, which have plummeted since May 2014.
The acquisition will give a wheel to Royal Dutch Shell Plc to become the top foreign firm in India’s booming gas import and marketing business.
According to Petroleum Planning and Analysis Cell (PPAC), a statistical body under the Union Ministry of petroleum and natural gas, in the last 10 years, India’s production of natural gas rose by a meager 14% from 21mtpa in 2004-05 (in terms of LNG equivalent) to 24 mtpa in 2013-14.
In contrast, LNG imports have risen by a massive 330% from 2.5 mtpa in 2004-05 to 10.76 mtpa in 2013-14.
The acquisition of BG puts Shell in a better position to take advantage of this growing segment.