Shell is to operate a standalone integrated gas division from the start of 2016 -- given the business's increasing importance to the overall group -- in a move that will also help Shell to integrate BG Group which it agreed to buy in April this year.
Shell also said it expects to achieve an additional $1 billion in cost synergies from its $70 billion deal with BG having identified new areas of savings.
Speaking on a webcast, CEO Ben van Beurden said the integrated gas business -- effectively the business of bringing gas to market in the form of LNG or GTL -- would be a "very significant" part of Shell's business going forward.
He said the move was part of Shell's new "simpler" upstream organization that would facilitate an easier integration of BG assets and staff.
"Integrated gas will be a standalone business in a move that reflects its enlarged scale and investment potential," van Beurden said. "By a number of measures, this is going to be a very material business."
Shell said its integrated gas business had generated an average of $11 billion/year in cash flow over the past three years compared with just $2 billion in 2009.
The new division -- one of three pillars in its new upstream business along with traditional upstream and unconventional resources -- will be led by Maarten Wetselaar.
COMPLEXITIES
Van Beurden said the integrated gas division, following closure of the BG deal, would represent more than a third of capital employed by the combined group.
He added that depending on prices, it was expected that the division's earnings would also represent "well over" a third of the company's total.
"Gas is of course already a key part of our business if you look at the amount of gas produced in overall mix -- 50%," van Beurden said.
However, in terms of future investment, the share of the integrated gas business would likely be lower.
"Fortunately for integrated gas, you do not require much follow-on capital," he said.
CFO Simon Henry said although the price environment had shifted, most LNG projects have low unit cash costs once up and running.
"They will all deliver cash at almost any conceivable oil price, though returns will depend on the absolute price at that time," Henry said.
Van Beurden said, though, that bringing gas to market involves a more "intricate" value chain that has more complexities than traditional oil and gas sales.
"It is a slightly different business than upstream and downstream," he said.
The challenges of the integrated gas business, he said, are: "The challenge of bringing the gas to market, of having connectivity, being able to trade around it, and to manage the portfolio of contracts. There is a reason to give it more bespoke prominence in the business."
GAS, LNG TRADING, BG 'MAGIC'
Van Beurden said Shell's current gas trading activities globally, and those of BG after the deal is completed, would sit in the new integrated gas division as well as remaining part of its wider "controls" environment.
"From a business perspective, it is an integral part of the integrated gas business," he said.
Shell is to combine its gas trading activities with its LNG trading and marketing operations to an have integrated gas marketing division, he said.
"All of that will then be combined and post-closing will be combined with the gas marketing and trading parts of BG."
Van Beurden added that it was important for "all of the BG magic" from its trading operations to be preserved in the new trading operation.
Last week, van Beurden said he was optimistic about LNG as a business, citing its low operating costs and cash flow generation potential.
He said about two-thirds of Shell's LNG portfolio was linked to the oil price, about 10% to the spot market, with the remainder being indexed to gas prices and other kinds of regional markers.
