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U.S. exports of liquefied natural gas (LNG) reached 1.94 billion cubic feet per day (Bcf/d) in 2017, up from 0.5 Bcf/d in 2016. As LNG exports increased, shipments went to more destinations. U.S. LNG exports in 2017, all of which originated from Louisiana’s Sabine Pass liquefaction terminal, reached 25 countries.
More than half (53%) of U.S. LNG exports in 2017 were shipped to three countries: Mexico, South Korea, and China. Mexico received the largest amount of U.S. LNG exports, at 20% of the 2017 total. Growing natural gas demand in Mexico, particularly from the power generation sector, and delays in the construction of domestic pipelines connecting to U.S. export pipelines led Mexico to rely on LNG imports to supplement imports of natural gas by pipeline.
In Asia, the widening difference between the Henry Hub natural gas price—to which U.S. LNG contract prices are indexed—and crude oil—to which LNG prices are benchmarked in Asia—helped to drive increases in LNG imports from the United States. Exports to South Korea accounted for 18% of total U.S. LNG exports in 2017 and were part of long-term contracts between sellers Cheniere Energy and Shell and the Korean natural gas buyers—utilities KOGAS and KEPCO. Exports to China made up 15% of total U.S. LNG exports. These exports were sold mostly on a spot basis, with volumes in October, November, and December increasing as record-high LNG demand prompted China to seek additional LNG on the global spot market to supplement contracted volumes.
Almost 60% of U.S. LNG in 2017 was sold on a spot basis to more than 20 countries in Asia, North and South America, Europe, the Middle East and North Africa, and the Caribbean. Although liquefaction capacity at Sabine Pass is fully contracted under long-term contracts to various buyers, flexibility in those contracts’ destination clauses allows U.S. LNG to be shipped to any market in the world.
After countries in Asia and North America (Mexico), countries in Europe collectively accounted for the third-largest share of U.S. LNG exports. LNG imports by several European countries increased in 2017, driven by increased demand primarily from the power generation sector. South American LNG imports declined in 2017. Demand for natural gas in that region is highly variable and is affected by the availability of competing lower-cost natural gas supply and hydro generation output.
The increase in LNG exports over the past two years is the result of the continuing expansion of U.S. LNG export capacity. Two LNG projects—Sabine Pass in Louisiana and Cove Point in Maryland—have come online since 2016, increasing U.S. LNG export capacity to 3.6 Bcf/d.
Four more projects are scheduled to come online in the next two years: Elba Island LNG in Georgia and Cameron LNG in Louisiana in 2018, then Freeport LNG and Corpus Christi LNG in Texas in 2019. Once completed, U.S. LNG export capacity is expected to reach 9.6 Bcf/d by the end of 2019. As export capacity continues to increase, the United States is projected to become the third-largest LNG exporter in the world by 2020, surpassing Malaysia and remaining behind only Australia and Qatar.
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On 10 December 2021, if all goes to plan Royal Dutch Shell will become just Shell. The energy supermajor will move its headquarters from The Hague in The Netherlands to London, UK. At least three-quarters of the company’s shareholders must vote in favour of the change at the upcoming general meeting, which has been sold by Shell as a means of simplifying its corporate structure and better return value to shareholders, as well as be ‘better positioned to seize opportunities and play a leading role in the energy transition’. In doing so, it will no longer meet Dutch conditions for ‘royal’ designation, dropping a moniker that has defined the company through decades of evolution since 1907.
But why this and why now?
There is a complex web of reasons why, some internal and some external but the ultimate reason boils down to improving growth sustainability. Royal Dutch Shell was born through the merger of Shell Transport and Trading Company (based in the UK) and Royal Dutch (based in The Netherlands) in 1907, with both companies engaging in exploration activities ranging from seashells to crude oil. Unified across international borders, Royal Dutch Shell emerged as Europe’s answer to John D Rockefeller’s Standard Oil empire, as the race to exploit oil (and later natural gas) reserves spilled out over the world. Along the way, Royal Dutch Shell chalked up a number of achievements including establishing the iconic Brent field in the North Sea to striking the first commercial oil in Nigeria. Unlike Standard Oil which was dissolved into 34 smaller companies in 1911, Royal Dutch Shell remained intact, operating as two entities until 2005, when they were finally combined in a dual-nationality structure: incorporated in the UK, but residing in the Netherlands. This managed to satisfy the national claims both countries make on the supermajor, second only to ExxonMobil in revenue and profits but proved to be costly to maintain. In 2020, fellow Anglo-Dutch conglomerate Unilever also ditched its dual structure, opting to be based fully out of the City of London. In that sense, Shell is following the direction of the wind, as forces in its (soon to be former) home country turn sour.
There is a specific grievance that Royal Dutch Shell has with the Dutch government, the 15% dividend tax collected for Dutch-domiciled companies. It is the reason why Unilever abandoned Rotterdam and is now the reason why Shell is abandoning The Hague. And this point is particularly existentialist for Shell, since its share prices has been battered in recent years following the industry downturn since 2015, the global pandemic and being in the crosshairs of climate change activists as an emblem of why the world’s average temperatures are going haywire. The latter has already caused the largest Dutch state pension fund ABP to stop investing in fossil fuels, thereby divesting itself of Royal Dutch Shell. This was largely a symbolic move, but as religious figures will know, symbols themselves carry much power. To combat this, Shell has done two things. First, it has positioned itself to be at the forefront of energy transition, announcing ambitious emissions reductions plans in line with its European counterparts to become carbon neutral by 2050. Second, it is looking to bump up its dividend payouts after slashing them through the depths of the Covid-19 pandemic and accelerating share buybacks to remain the bluest of blue-chip stocks. But then, earlier this year, a Dutch court ruled that Shell’s emissions targets were ‘not ambitious enough’, ordering a stricter aim within a tighter timeframe. And the 15% dividend tax remains – even though Prime Minister Mark Rutte’s coalition government has been attempting to scrap it, with (it is presumed) some lobbying from Royal Dutch Shell and Unilever.
As simplistic it is to think that Shell is leaving for London believes the citizens of the Netherlands has turned its back on the company, the ultimate reason was the dividend tax. Reportedly, CEO Ben van Buerden called up Mark Rutte on Sunday informing him of the planned move. Rutte’s reaction, it is said was of dismay. And he embarked on a last-ditch effort to persuade Royal Dutch Shell to change its mind, by immediately lobbying his government’s coalition partners to back an abolition of the dividend tax. The reaction was perhaps not what he expected, with left-wing and green parties calling Shell’s threat ‘blackmail’. With democracy drawing a line, Shell decided to walk; or at least present an exit plan endorsed by its Board to be voted by shareholders. Many in the Netherlands see Shell’s exit and the loss of the moniker Royal Dutch – as a blow to national pride, especially since the country has been basking in the glow of expanded reputation as a result of post-Brexit migration of financial activities to Amsterdam from London. The UK, on the other hand, sees Shell’s decision and Unilever’s – as an endorsement of the country’s post-Brexit potential.
The move, if passed and in its initial stages, will be mainly structural, transferring the tax residence of Shell to London. Just ten top executives including van Buerden and CFO Jessica Uhl will be making the move to London. Three major arms – Projects and Technology, Global Upstream and Integrated Gas and Renewable Energies – will remain in The Hague. As will Shell’s massive physical reach on Dutch soil: the huge integrated refinery in Pernis, the biofuels hub in Rotterdam, the country’s first offshore wind farm and the mammoth Porthos carbon capture project that will funnel emissions from Rotterdam to be stored in empty North Sea gas fields. And Shell’s troubles with activists will still continue. British climate change activists are as, if not more aggressive as their Dutch counterpart, this being the country where Extinction Rebellion was born. Perhaps more of a threat is activist investor Third Point, which recently acquired a chunk of Shell shares and has been advocating splitting the company into two – a legacy business for fossil fuels and a futures-focused business for renewables.
So Shell’s business remains, even though its address has changed. In the grand scheme of things, never mind the small matter of Dutch national pride – Royal Dutch Shell’s roadmap to remain an investment icon and a major driver of energy transition will continue in its current form. This is a quibble about money or rather, tax – that will have little to no impact on Shell’s operations or on its ambitions. Royal Dutch Shell is poised to become just Shell. Different name and a different house, but the same contents. Unless, of course, Queen Elizabeth II decides to provide royal assent, in which case, Shell might one day become Royal British Shell.
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