Shell’s $70 billion acquisition comes with several potential pitfalls

Fortune

Shell’s big bet on liquefied natural gas (LNG) is far from a sure thing.

It is LNG, not oil, that’s truly behind the European energy giant’s $70 billion acquisition of Britain’s BG Group, which was announced on Wednesday. Together, the two firms would control a significant amount of the world’s LNG supply, besting rival ExxonMobil by a considerable margin.

But while being bigger is usually better in the energy world, it may not pay off as well when it comes to the volatile and niche LNG marketplace.

LNG suppliers used to have the upper hand, but that advantage has degraded sharply over the last few years as demand growth has waned. Contract terms are now shorter and less lucrative for suppliers. To make matters worse, rising construction and maintenance costs have made LNG imports less appealing to many customers, all while continued tepid demand is causing supply to build…

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