Rakteem Katakey London
THE BIGGEST obstacle to Royal Dutch Shell’s $70 billion (R841.5bn) offer for BG Group probably lies in China.
Shell chief executive Ben Van Beurden visits the country this week to convince officials that the combination of two large oil and gas producers poses little risk for the world’s biggest energy importer.
He is not certain to succeed given the clout the enlarged company will have in the global market for liquefied natural gas (LNG), according to Gordon Kwan, Hong Kong-based head of regional oil and gas research at Nomura International.
“The thing that could potentially tumble out of the closet is BG and Shell’s LNG projects in Australia, which export to China,” Kwan said.
“They might have to divest some stake,” he said.
Negotiations will test Hague-based Shell’s storied relationship with China, which started with kerosene imports in 1894 and today includes a global alliance with PetroChina, the country’s biggest oil producer.
Van Beurden will be aware that China’s anti-trust authorities have challenged major natural resource deals on competition before.
Glencore sold its Las Bambas copper mine in Peru to China Minmetals for $7bn as part of an agreement to win Chinese regulatory authorisation for its $29bn takeover of Xstrata in 2013.
BG and Shell both have export projects in Australia that will supply China with gas, and Shell will become the leading player in the global LNG industry after buying UK-based BG.
Shell’s LNG sales would rise 80 percent by 2018 and the combined company would account for about 15 percent of the world’s traded LNG, company executives said the day after the deal was announced.
“The deal is pro-competitive, and whilst we expect the usual thorough and professional review by the relevant anti-trust and other regulatory authorities, we are confident that the deal will receive the necessary approvals,” Shell said yesterday.
Two calls to the anti-monopoly bureau of China’s Ministry of Commerce went unanswered.
Of all the places Shell needed anti-trust approval, which include Brazil, the EU and Australia, China was most likely to seek concessions, said Jonathan Stern, the head of the natural gas programme at the Oxford Institute for Energy Studies.
“Sovereign governments are nervous about potential market powers,” Stern said.
“The Chinese may well demand that Shell limit the volumes of LNG that is supplied from their portfolio to China.”
Gas is important for China as the country battles the pollution generated by coal-burning power stations.
The government has set a target of increasing the share of gas in the energy mix to more than 10 percent by 2020 from less than 6 percent in 2013.
That would be more than double the total gas consumption, Bloomberg Intelligence analysts Joseph Jacobelli and Grace Lee wrote in a March 25 report.
Van Beurden met Brazil’s President Dilma Rousseff last month as well as officials at state-run Petroleo Brasileiro, to brief them about the BG acquisition, which will make Shell one of the biggest foreign producers in Brazil. Responses from the government were positive, Van Beurden said last week. – Bloomberg