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Shell's Growth Tied to Natural Gas, Says CEO

The catalyst for Royal Dutch Shell plc's future growth will continue to be natural gas, as evidenced by a spat of massive projects in North America and worldwide, CEO Peter Voser affirmed to shareholders last week.

Even though oil pricing still accounts for about 80% of the European-based major's profits, rising global gas demand will fuel future growth for the major, the CEO said at the annual general meeting in London.

North American gas prices are at decade lows, but the continent's copious supplies offer tremendous opportunities, Voser noted. Last week affiliate Shell Canada Ltd. and three Asian energy partners unveiled LNG Canada, the biggest proposed liquefied natural gas (LNG) export project to date for British Columbia's Kitimat area -- and for North America -- a 12 million ton/year export plant (see NGI, May 21). Pending approvals, the massive plant could begin exports to Asia Pacific markets by 2020.

Globally, Shell expects to produce more gas than oil for the first time this year, he said. The gas portfolio is getting a big financial injection around the world, notably in North America's onshore and offshore, as well as overseas. Recent investments include Australian LNG projects. And it remains the world's largest LNG shipper through some strategic partnerships with Qatar.

Even with low prices in the United States, the long-term pricing outlook for natural gas is strong, the CEO said. For instance, Asian-Pacific customers increasingly are switching from powering industrial plants with oil to natural gas, Voser noted. Even though the company's margins are driven mostly by the oil side of the business, the company is benefiting from the difference in regional gas prices worldwide.

The continued shift to gas, however, doesn't mean that Shell will eschew its oil and chemicals businesses. "We will drive an integrated philosophy because that is where the future growth will lie," Voser said.

In a sign of growing discontent with the high level of pay for oil and gas executives, 9% of the shareholders who voted this year rejected Shell's remuneration plan, compared with just 2% who had opposed the compensation plan at the 2011 meeting. At BP plc's annual meeting last month 11% rejected the compensation arrangement for management. Following weeks of scrutiny and stock volatility, Chesapeake Energy Corp. earlier this month reduced the compensation package for its board of directors; CEO Aubrey McClendon's pay package was reduced in 2011 from 2010 by about 15% (see related story).

Some financial analysts have dubbed this year's populist protests a "shareholder spring."

However, more than 90% approved Shell's pay hikes, and the majority approved the rest of the company's proposals. Top management is to receive an average annual compensation package increase of about 59% over 2011 levels. A company spokesman said the remuneration policy "firmly links executive compensation with the performance of the company, and the 2011 outcomes reflect what was a positive year for the company."

Shell earned $6.46 billion ($1.04/share) in 4Q2011, which was 13% higher than in 4Q2010 when it earned $5.69 billion (93 cents), but down sequentially from 3Q2011 earnings of $7.25 billion ($1.16) (see NGI, Feb. 6).

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