SHEL - Shell: LNG Leadership Makes For An Attractive Risk/Reward
2024-03-28 14:31:05 ET
Summary
- Following its Capital Markets Day 2023 and the appointment of new CEO Sawan, Shell has lowered the pace of its energy transition and now aims at stable production through 2030.
- Next to best-in-class deepwater assets in the Gulf of Mexico and Brazil, Shell has a dominant position in LNG at ~17% of global supply supported by a highly visible pipeline.
- Due to its dominance in production and storage capacity, Shell's LNG trading is in a highly advantaged position to exploit global price arbitrage, alone contributing ~$2.4B in Q4 net profit.
- I am highly bullish on Shell's leverage to benefit from growing demand in LNG and realize higher natural gas prices in Asian and European markets. Initiate at Overweight (PT $90).
Shell plc ( SHEL ) has gotten its fair share of criticism over the past years, through its accelerated push into renewable energy generation in wind and solar power alongside the announcement to cut hydrocarbon production further every year. With the replacement of previous CEO van Beurden by Wael Sawan, previously the leader of Shell's Integrated Gas division, those plans have been significantly laxed with the new CEO aiming to keep liquids production stable through the decade and grow natural gas output.
Helped by the new CEO's background, I estimate gas and LNG to be Shell's key value drivers in the future with the company already the global leader at ~17% of global supply in 2023. Through 2030 management aims to grow LNG sales by 25-30%, providing an attractive leverage on changes in the energy mix specifically in Asia and Europe. Alongside strong recent exploration efforts at peer-leading RRR, I view the company's leadership in LNG capacity and trading as a key competitive advantage and initiate my coverage of Shell at Overweight at a price target of $90 per US ADS (~34% upside)....
Shell: LNG Leadership Makes For An Attractive Risk/Reward