Shell begins diverting natural gas to Japan

Shell has begun to ship liquid natural gas cargoes into Tokyo to help meet their energy demands in the aftermath of the earthquake and subsequent nuclear crisis. The first batch into the Tokyo Bay area was agreed on Monday night, and significantly for global LNG prices, it had originally been intended for elsewhere.

This was confirmed by the CEO Peter Voser at Shell’s strategy day, where unsurprisingly, much of the focus from journalists was on recent events in Japan and the Middle East. As far as Japan’s effect on gas prices, Simon Henry, the company’s chief financial officer, had this to say:

Last night, we agreed the first cargo into the Tokyo Bay area. We will not be taking advantage of the short term pricing implications of that.

More towards the medium term, after the last earthquake in Japan, the country spent two years bringing the nuclear plants back online, which did support the LNG markets.

Mr Henry also suggested that such an effect could see Europe move back towards oil-linked gas prices, after moves to price more contracts from the spot market because of low gas prices.

In Asia we don’t see the linkage breaking with the oil price link… In the US, it will stay de-linked. In Europe, it’s not clear. Events like Japan may move it back to oil linkage. But that doesn’t change our view that gas demand will grow much quicker that oil product demand.

Natural gas prices have slipped since the highs of Monday, but remain significantly higher than they were before the earthquake.

Middle East

On Libya, Mr Voser refused to rule out returning to the country even if Gadaffi regained control. He said:

It is too early for me to speculate what the whole industry will look like in Libya after it returns to a normal environment…. Today we are not in a position to give you that judgment, unless we see things are unfolding in Libya and then take necessary decisions once we are there. We can see it is a tragedy from the Libyan people’s point of view, so we hope for a peaceful solution in not too long a time, and then we will reassess the situation.

He followed that up with what seems, in the aftermath of Gadaffi’s assault on his own people, a pretty weak defence of working with violent dictators:

Shell operates across the world in countries which are still under development and are evolving into democratic structures over time. We see a strong role for Shell to develop these resources to develop the living standards of people in these places.

Time to show the money

On the real substance of the day, it was clear that this is a crunch year for the company. It is now in the second of its three year plan to become “the most competitive and innovative energy company in the world”, and having stripped back costs in recent years, has to start showing that its new projects can be profitable. Many of those seem to be on track, from its gas-to-liquid facility in Qatar to oil sands developments in Canada.

The one black spot on the horizon, however, remains deepwater drilling in the Gulf of Mexico. Shell has made a big play in that area, particularly with the vast Mars B platform. But as Mr Henry admitted, they are still having problems getting new licences through the US authorities:

[Since Macondo] only two wells have been approved, both in the last couple of weeks. Both are recompleting wells already in progress – there have been no permits yet for new wells.

We have multiple applications in at the moment, and we were the first company to have one declared as complete for consideration… But the overall programme for approving permits has been slow.

Pay rise

But whatever concerns Mr Voser may have about aspects of Shell’s strategy, he certainly shouldn’t have any financial worries. The company also confirmed on Tuesday that his overall pay rose 62% to €5.36m last year.

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