Shell acquires Singapore's Pavilion Energy from Temasek

Shell Eastern Trading, a subsidiary of Shell, has signed an agreement with Carne Investments, an indirect fully owned subsidiary of Temasek, to acquire all shares in Pavilion Energy, the oil major said in a statement June 18.

The deal includes Singapore-based Pavilion Energy's global LNG trading business with a contracted volume of about 6.5 million mt/year and other parts of the LNG supply chain such as shipping, downstream natural gas supply and marketing in Asia and Europe, Shell said. It did not state the value of the transaction.

Pavilion Energy controls long-term regasification capacity of around 2 million mt/year at the Isle of Grain LNG terminal in the UK, regasification in Singapore and Spain, time-charter of three M-type, Electronically Controlled Gas Injection LNG vessels and two Tri-Fuel Diesel Electric vessels, and an LNG bunkering business for which the first vessel was deployed in early 2024.

However, the transaction does not include Pavilion Energy's pipeline gas business, which will be transferred to Gas Supply Pte. Ltd., a subsidiary of Temasek, prior to completion, and Pavilion Energy's 20% shareholding in blocks 1 and 4 in Tanzania, Shell said.

"The acquisition of Pavilion Energy will strengthen Shell's leadership position in LNG, bringing material volumes and additional flexibility into our global portfolio," Zoe Yujnovich, Shell's Integrated Gas and Upstream director, said.

"We will acquire Pavilion's portfolio of LNG offtake and supply contracts, which includes additional access to strategic gas markets in Asia and Europe," Yujnovich said. Shell currently holds the first LNG importing license to Singapore, supplying nearly a quarter of the country's natural gas needs.

Shell said the deal was in excess of the internal rate of return hurdle rate for Shell's Integrated Gas business, as per its 15%-25% growth plan for purchased volumes, relative to 2022.

"Integration of portfolios will commence after the completion of the deal, which is expected by Q1 2025, subject to regulatory approvals and fulfilment of other conditions precedent," the statement said.

The transaction is expected to complete by the first quarter of 2025, subject to regulatory approvals, Pavilion Energy said in a separate statement June 18.

Moving ahead

Shell is an existing LNG import license holder for Singapore and this deal can increase Shell's market share in the Singapore downstream market, S&P Global Commodity Insights natural gas analyst Amanda Kang said.

Pavilion's latest contracts signed in 2020-21 with QP Trading, BP and Chevron totals 3.1 million mt/year, which is larger than the 1 million mt/year import and marketing license that Pavilion holds, she said.

"Some of the volumes are understood to be supplied to the Energy Market Authority's vesting contracts to the power sector until 2028. With a larger portfolio, Shell is better placed to optimize its supply portfolio for trading and downstream sales," she said.

The latest deal is also complementary to Shell's existing position in Singapore and Europe, Kang noted.

However, long-term benefits are uncertain as a gas aggregator framework is planned to be introduced for Singapore's power sector in 2024, she said.

While the latest deal will result in a change of hands of Pavilion's existing portfolio to Shell, future marketing activity of LNG supply by Shell to downstream end-users will be limited to the non-power sectors once the framework is in place, she said.

Meanwhile, industry sources based in Singapore noted that the deal was in line with Singapore's aspiration to become an LNG trading hub as the country increases its reliance on the fuel to meet its demand as well as carbon emission reduction targets. Energy security will stay paramount after the transaction as the country embraces a sole gas aggregator model, they said.

The Shell-Pavilion transaction is "business as usual," a source said, noting that Temasek as an investment company was simply offloading its stake in Pavilion.

"We haven't heard too many details about the deal, but we hope that the Singapore government provides more third-party access to other players ...I personally hope that more LNG licenses are also awarded," as infrastructure ramps up another industry source said.

In October, Singapore LNG announced a plan to develop and eventually operate the Second LNG Terminal in Singapore. The terminal, with a gas supply capacity of up to 5 million mt/year, is expected to be operational by the end of the decade, it said at the time.