Shell's Prelude Gets Go-ahead - Analyst Blog

The Australian government has finally granted environmental approval to energy major Royal Dutch Shell plc's (RDS.A) proposed Prelude floating liquefied natural gas (“LNG”) project following four deferrals. The green light for the development – located in the Browse basin off northwestern Western Australia – was announced by Environment Minister Tony Burke after laying out stringent conditions for the venture.

The government approval to the $5.7 billion project, subject to the development of a greenhouse gas emission abatement strategy that is transparent and publicly available, has paved the way for a final investment decision by The Hague-based behemoth in early 2011.

The first shipment from Prelude, which has estimated reserves of 2.5–3.0 trillion cubic feet of gas plus 120 million barrels of condensate, is expected in 2016. The project will consist of an LNG train aboard a huge vessel that will then produce gas from far-off fields which have been inaccessible up to now, before liquefying it and transferring it to an LNG tanker.

The business environment for LNG remains robust, with demand likely to grow at around 8%−10% annually over the next few years in all major markets. The Prelude project – a brand new application of LNG technology – provides Shell an attractive strategic position for serving the fast-growing economies of China and India, plus other Asian countries.  

Royal Dutch Shell – Europe's largest oil company by market value ahead of BP plc (BP) and Total SA (TOT) – owns one of the largest integrated oil and gas businesses in the world. The group has operations all over the world and is involved in various activities related to oil and natural gas, chemicals, power generation, renewable energy resources and other energy-related businesses.

Royal Dutch Shell ADRs currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.

 
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