Shell (NYSE: RDS-A) Natural Gas Production

Brian Hicks

Written By Brian Hicks

Posted May 3, 2013

Shell is making more headway into natural gas.

Royal Dutch Shell (NYSE: RDS-A) has been selected by Abu Dhabi National Oil Company for a 30-year development deal in the Bab sour natural gas field of the United Arab Emirates.

Abu Dhabi
Abu Dhabi

Abu Dhabi will construct a gas treatment and processing plant that will purge the levels of hydrogen sulfate from the natural gas.

Once the region gets fully underway, Bab sour could have an output of anywhere between 500 mcf to 800 mcf of natural gas per day.

Shell announced it will take a 40 percent stake, with Abu Dhabi holding 60 percent. Overall, the deal will cost $10 billion, and the field could generate $200 million in yearly income. On UAE’s end, the deal will supply an extra fuel source to the local economy, and Shell will widen its natural gas portfolio in Asia.

The nature of the deal was very much up in the air, and Shell was fortunate to have been selected—especially considering that French company Total (NYSE: TOT) has been in the UAE for some time, and President Francois Hollande of France made an official visit to UAE in promotion of Total in early 2013.

There has been disagreement between Shell and Total over what to do with the sour sulfur content contained with the Bab reserves. Shell desires to export the extracted sulfur, while Total has proposed pumping it below surface.

But with Shell chosen over Total, it appears the Anglo-Dutch company will have its way.

Total was betting on being chosen, and many analysts were surprised by the pick.

Why Shell Over Total?

Only Abu Dhabi can answer that question, but Shell does have a wide array of natural gas experience in the Middle East and around the globe.

It also helps that Shell is based in England, a country with a history of contributing to the development of the UAE’s energy economy, and relations between the two countries are solid.

Shell has also gained a solid reputation of contributing to local communities through providing jobs and boosting economic development.

The official Shell website states that the company places emphasis on respecting cultural traditions, disrupting community lifestyles as little as possible, and upholding strong health and safety standards for workers and locals.

Many companies say this as an official stance, but Shell is one company that has walked the walk—so to speak. Shell has garnered a good standing wherever it conducts business.

Reputation and word of mouth goes a long way, and this may have played a role as to how Shell beat its energy rivals in the Abu Dhabi deal.

Shell’s Natural Gas Hunt

Natural gas may be cheap and abundant in the United States, but abroad it is THE commodity to extract. In fact, many oil companies in the U.S. are hoping the Department of Energy will approve more natural gas export facilities.

Shell is the top exporter of liquefied natural gas (LNG) in the world.

Liquefied natural gas is a special commodity that goes for a much higher price in Asia. It is a lucrative market for oil companies to convert natural gas to LNG for direct shipment to East Asia.

Since the gas from the Bab reserve is sour, containing 15 percent hydrogen sulfide, a “sweetening” process is needed to purify the gas that reaches above ground.

And the processing plant coincides with Shell’s image of providing clean fuel to local economies and abroad.

Shell will be able to get ahold of more Middle East natural gas for shipment to the Far East, and having an investment stake in developing energy markets in places like Qatar, UAE, and Iraq will help.

Other Shell Natural Gas Projects

If you’re interested in Shell production, then pay attention to the Middle East.

You may be asking why Shell is investing in remote regions of Middle East. After all, there are other places in the world with high natural gas growth.

For one thing, the Middle East natural gas market is not as overcrowded as, say, the United States. So Shell is betting big on the energy market in the Middle East, a move that will also give it better access to its primary target: East Asia.

Since most of Europe is undergoing economic strain, governments in that continent are cutting energy costs by importing cheap coal, so it makes sense for companies like Shell to shift gears to nations with rising economies.

From an energy perspective, OPEC and crude are some of the first things that come to mind when we think of the Middle East, but the region holds over 30 percent of the world’s natural gas reserves.

Shell has been so heavily invested in the Middle East that the company website calls its presence in Qatar “Qatarization,” a campaign effort to be the number one choice of employment for Qatari workers.

Besides Qatar, Shell has recently cemented a deal in southern Iraq: a 25-year partnership with a 44 percent stake. This deal will be mostly for domestic consumption, but there is room for exports.

And it’s not just about the Middle East; Shell is also investing in high growth areas for natural gas.

Outside of the Middle East, the company also struck a U.S. deal in January of 2013, partnering with Kinder Morgan Energy Partners (NYSE: KMP) in the construction of an export facility in Georgia that will chill natural gas for abroad exports. It is one of the many export facilities awaiting approval from the Department of Energy.

Shell has a smart strategy of investing in areas with the most growth while also having a foothold in developing markets in the Middle East.

Either way, it is a win-win for Shell.


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