In April of 2015, Royal Dutch Shell, more commonly referred to as Shell, began its acquisition of the United Kingdom based natural gas company BG Group. Investors were a bit anxious when the gas and oil company announced its $70 billion dollar deal to takeover the BG Group. With the merger of BG and Shell, the company aimed to hold a majority of the global market for liquefied natural gas at around 14%. In fact, when Shell pitched the acquisition to their investors, this was a main selling point. However, with LNG sales on a steep decline, the merger is looking like a bad decision.
BG released their third quarter results on October 30 only to show a major decline in the marketing and shipment of LNG. This was a huge scare to Shell as LNG was a large reason they bought the Netherlands based company. In numbers, revenue fell year on year at around 65 percent. BG had even raised its earnings expectations for that time period of 2015. Despite the uneasy circumstances, BG is still sure that LNG will earn them around $1.4 billion for the year.
An over-supply of gas reserves as well as a decrease in gas consumption, especially in Asia, are to blame for the large sales down turn in the LNG market. As if things couldn’t be any worse, BG and Shell also have to deal with weak crude oil prices. With Shell struggling already, this recent merger with BG seems to have only given them more problems to deal with. However, despite their position, Shell and BG remain confident that LNG market will turn around in their favor. The BG group estimates that the total global supply of LNG will grow by 50% by the year 2020. For now, the combination of Shell and BG seem to only be bringing more problems.