SINGAPORE: Shell Singapore has sold a 60-year-old crude oil refinery and bought one of the Republic’s top traders of lower-emissions liquefied natural gas (LNG) in the space of two months.

The almost back-to-back transactions now stand as the best example of how the company envisions execution of its energy transition strategy that aims to cut its carbon footprint and increase focus on its most profitable businesses.

“Energy transition is real, and we are committed to it. But it must also be profitable. Because if a business is not profitable, it will disappear anyway,” Aw Kah Peng, chairwoman of Shell Companies in Singapore, told The Straits Times in an interview.

In May 2024, Shell agreed to sell its energy and chemicals park on Singapore’s Pulau Bukom and Jurong Island to CAPGC, a joint venture between Indonesia’s Chandra Asri Capital and global commodities trader Glencore.

The sale included Singapore’s first oil refinery, built in 1961. Seen as iconic for its historical significance, the refinery on Pulau Bukom and its adjoining petrochemical complex on Jurong Island have not exactly been moneymakers in recent years.

The 237,000 barrels-per-day refinery and a one million tonnes-per-year ethylene plant on Bukom, and a chemicals manufacturing site on Jurong Island had formed the bulk of the impairment charges of up to US$4.5bil announced by Shell earlier in 2024.

That showed why the London-listed company had placed the Singapore assets under a strategic review about a year earlier.

Shell, however, has been improving its financial performance in trading LNG - dubbed as the perfect low-carbon fuel that provides the flexibility that the power generation industry needs to replace coal, and the time that renewable generation needs to grow at scale and displace fossil fuels altogether.

Hence, it was no surprise when Shell announced in June that it had agreed with Carne Investments, an indirect wholly owned subsidiary of Singapore’s Temasek, to acquire 100 % shares in Pavilion Energy, which trades and ships LNG in Asia and Europe, with a portfolio of about 6.5 million tonnes per year of long-term contracts.

Energy consultant Wood Mackenzie said the Pavilion deal and the divestment from the Singapore oil assets align with Shell’s broader business strategy to lead the transition to lower-carbon energy solutions, including its positioning of LNG as a key transition fuel in the global energy transition.

“Acquiring Pavilion’s LNG assets will solidify Shell’s leadership in the global LNG market,” said Fadhlullah Omarali, Wood Mackenzie principal analyst for gas and LNG markets, in a research note.

While Shell is already a leading global player in LNG marketing and bunkering, Aw said the Pavilion acquisition will broaden the company’s customer base and market presence within Singapore and across the Asia-Pacific - the fastest-growing market for LNG.

“We have projected that LNG will continue to grow, and in fact the growth is very much Asia-anchored. We are talking about China, South-East Asia, and South Asia. So, it is very much anchored in Asia,” she said.

Shell believes that global demand for LNG will rise by more than 50% by 2040, as industrial coal-to-gas switching gathers pace in China, South Asia and South-East Asia.

To capture that demand, Shell plans to grow its global LNG business by 20% to 30% by 2030, compared with 2022. Purchased LNG volumes will grow by 15% to 25% in the same period.

Aw said that in pursuit of those goals, Shell is investing in natural gas assets worldwide, including the recent purchase of stakes in the Middle East and Trinidad and Tobago, where production could potentially be destined for Asia.

The integration of the LNG refuelling businesses of Shell and Pavilion will also further cement Singapore’s status as the world’s leading LNG trading centre and a key LNG bunkering hub.

Aw said demand for LNG as a bunkering fuel is growing fast as more shippers retrofit their vessels with hybrid solutions that allow them to use both fuel oil and LNG.

FueLNG, a joint venture between Seatrium Offshore & Marine and Shell Singapore, announced the successful completion of its 200th ship-to-ship LNG bunkering operation late in June.

The acquisition of Pavilion will also make Shell Singapore’s dominant aggregator - licensed to consolidate demand for regasified LNG from end users of gas in Singapore, and to procure LNG supply for these end users.

The most critical of these end users are the power companies that heavily depend on natural gas to produce electricity.

Natural gas is used to produce about 95% of Singapore’s electricity, according to the Energy Market Authority. The remainder is generated from other sources such as diesel, waste incineration, coal and biomass.

More than half of the gas demand is met by piped gas from Malaysia and Indonesia, and the rest is satisfied by regasified LNG.

Aw said Shell’s global portfolio will continue to help Singapore meet the demand for the power generation fuel in times when supply from one of the pipelines suffers an unplanned outage.

“For Singapore, LNG is the only emergency fuel it can reach for if something happens, like a pipeline stops producing,” she said.

While Shell is predominantly an oil and gas company, it is not completely absent from the renewable space.

Half of its 57 petrol stations in Singapore now offer electric vehicle (EV) charging points.

Shell has also installed EV charging points in Housing Board estates, malls, office buildings and condominiums.

Three Shell service stations located in Tampines, Pasir Ris and Lakeview provide EV charging using 100% certified renewable energy, including energy from solar panels at the rooftops of these stations and other Shell rooftops across Singapore.

The sale of its energy and chemicals park and purchase of Pavilion mean that Shell will lose some of its employees and gain some when the transactions are completed.

While the transactions are designed to avoid any operational disruptions, Shell has also ensured that employees will not suffer.

Hence, CAPGC will take all the Shell employees in the energy and chemicals park, and Shell will do the same with Pavilion employees.

Aw said the transition Shell Singapore is going through would not have been possible without the cooperation of its local staff and a culture the company has built over the years.

“The culture we have built here is one where we say, okay, we support you.

“Of course, we have a corporate mission, but we support you. We want you to be part of our journey.”

 - ANN