Shell acquires Pavilion Energy to boost LNG market presence

Shell Eastern Trading Pte. Ltd., a subsidiary of Shell plc, has announced the acquisition of Pavilion Energy Pte. Ltd. from Carne Investments Pte. Ltd., an indirect subsidiary of Temasek Holdings. Temasek Holdings is a Singaporean sovereign wealth fund owned by the Government of Singapore. Established in 1974, Temasek is an investment company with a diverse portfolio across various sectors and geographies.

Pavilion Energy is headquartered in Singapore and operates across Asia and Europe, focusing on LNG trading, shipping, and natural gas supply. However, its pipeline gas business and stakes in Tanzanian blocks are not included in this transaction and will be transferred to Gas Supply Pte Ltd, a wholly-owned subsidiary of Temasek, prior to the deal’s completion.

The strategic acquisition aims to bolster Shell’s leadership in the liquefied natural gas (LNG) market by integrating Pavilion Energy’s extensive LNG trading business into Shell’s global operations.

Acquisition details

• Value and Structure: Shell will acquire 100% of the shares in Pavilion Energy, valued at approximately USD1.4 billion. This acquisition includes Pavilion Energy’s global LNG trading business with a contracted supply volume of about 6.5 million tonnes per annum (mtpa).
• Financial Impact: The deal is incorporated within Shell’s existing capital expenditure guidance and is expected to meet the company’s internal rate of return (IRR) hurdle rates for its Integrated Gas business.

 Strategic advantages

• Enhanced LNG Capabilities: Pavilion Energy’s portfolio includes long-term LNG sale and supply contracts, regasification capacity in the UK, Singapore, and Spain, and a fleet of LNG vessels. This will significantly enhance Shell’s flexibility and capacity in the LNG market.
• Market Expansion: The acquisition provides Shell with additional access to strategic gas markets in Asia and Europe, reinforcing its ability to meet growing energy demands and ensuring energy security for its customers.

Integration and future plans

• Integration Timeline: The integration of Pavilion Energy’s assets into Shell’s portfolio will begin after the deal’s completion, expected by the first quarter of 2025, subject to regulatory approvals.
• Growth Ambitions: This acquisition aligns with Shell’s goal to expand its LNG business by 20-30% by 2030, as highlighted in the 2023 Capital Markets Day. It will also contribute to Shell’s target of increasing purchased LNG volumes by 15-25% relative to 2022 levels.

“The acquisition of Pavilion Energy 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. “We will acquire Pavilion’s portfolio of LNG offtake and supply contracts, which includes additional access to strategic gas markets in Asia and Europe. By integrating these into Shell’s global LNG portfolio, Shell is strongly positioned to deliver value from this transaction while helping to meet the energy security needs of our customers.”

The global demand for LNG is projected to increase by more than 50% by 2040, driven by industrial coal-to-gas switching and economic growth in Asia. Shell believes that LNG will play a critical role in the energy transition, displacing coal in power generation and industrial applications, thereby reducing air pollution and carbon emissions.