Shell and Saudi Aramco (2222.SE) are currently engaged in price negotiations after completing the due diligence process for the potential acquisition of the assets of Pavilion Energy, a liquefied natural gas (LNG) trading firm owned by Temasek. Sources familiar with the matter revealed that the discussions mark the final stage of the acquisition process, with the assets estimated to be valued at over $2 billion.
Pavilion Energy was established by the Singapore state investment firm a decade ago to focus on LNG-related investments. While Pavilion Energy, Temasek, Shell, and Barclays (the advisor to Temasek) declined to comment on the matter, Saudi Aramco, overseeing the negotiations through its gas unit, did not provide any official statement.
For Aramco, the potential deal represents an opportunity to strengthen its position as a global LNG player. The company is intensifying its gas exploration efforts with a target to increase production by over 60% from 2021 levels by 2030. Additionally, Aramco is exploring investments in LNG projects abroad, following its acquisition of a minority stake in MidOcean Energy for $500 million last year.
LNG trading played a significant role in Shell’s profitability in the fourth quarter of the previous year, with the company being the world’s largest LNG trader and benefiting from its extensive global operations that leverage regional demand and pricing dynamics.
Shell has emphasized the pivotal role of gas and LNG in the energy transition, highlighting their potential to replace more polluting coal in power generation.
Pavilion Energy, as one of four companies authorized by Singapore’s Energy Market Authority to import LNG, supplies a third of the city-state’s power and industrial gas needs through LNG and piped natural gas. The company also serves LNG to ships in Singapore, a key bunkering hub globally.
Over the years, Pavilion Energy has made strategic investments, including acquiring gas blocks in Tanzania in 2013 and purchasing Iberdrola’s LNG assets in 2019 to gain access to European markets. In its latest financial results, the company reported a profit after tax of $438 million for the year ending March 2023, marking a significant turnaround from the previous year’s loss. Revenue surged by 38% to $9.09 billion, with shareholder equity value standing at $3.63 billion as of March 2023, according to Temasek’s website.