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Shell's Big Deal Could Shift Global Landscape Of Gas Business


A huge merger is shaking up the troubled energy industry today. The European oil giant Royal Dutch Shell announced it's buying the BG Group for about $70 billion. Shell hopes the deal will make it a stronger player in the market for liquefied natural gas. As NPR's Jim Zarroli reports, the merger is taking place at a time when falling prices for oil and gas are cutting into profits.

JIM ZARROLI, BYLINE: This is not a good time to be in the petroleum business. Oil prices have fallen by 50 percent since last July and with an oversupply of crude, the industry is even running out of places to store its product. But Shell is hoping that by getting bigger now, it will be in a stronger position when prices rebound. Fadel Gheit is an energy analyst at Oppenheimer and Company.

FADEL GHEIT: We don't really have impressive growth outlook - they have to capitalize on efficiency and size and that's what Shell is trying to accomplish here.

ZARROLI: By acquiring BG Group, Shell is joining forces with one of the world's biggest liquefied natural gas or LNG companies. LNG is produced by lowering the temperature of natural gas to -270 degrees Fahrenheit. At that temperature, natural gas is converted to liquid - it can then be placed on specialized ships built to maintain the super cold temperature and exported all over the world. The finished product is cleaner than oil or coal. But producing LNG is very expensive, Gheit says.

GHEIT: It's a very involved process - through billions of dollars and many years of construction. So it's an exclusive club - there are only five companies around the world that do that.

ZARROLI: BG Group is one of the LNG industry's major players. It has a network of terminals and ships that allow it to control the production and distribution process from beginning to end. It also has huge gas fields in Australia and off the coast of East Africa. And it has a big interest in some very promising deep water oil fields off of Brazil. But energy consultant Michael Lynch is skeptical about the merger of Shell and BG. He says people in the energy business tend to assume that prices will return to their highest levels but it's not clear how soon that will happen.

MICHAEL LYNCH: If they can really achieve major cost savings that would be a plus but I don't know that they can do enough to offset the long-term weak LNG market that I expect to prevail.

ZARROLI: The merger has to be approved by regulators not just in the U.S. but in Europe, Brazil and Australia. Company officials say they expect the deal to be approved, though they may have to sell off some assets before that can happen. Jim Zarroli, NPR News, New York. Transcript provided by NPR, Copyright NPR.

Jim Zarroli is an NPR correspondent based in New York. He covers economics and business news.