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Shell to Expand Presence in Asia and Alternative Fuel Market

September 20, 2017, 01:35:00 PM EDT By Zacks Equity Research,

Per Reuters, integrated oil and gas company, Royal Dutch Shell plc RDS.Aintends to increase its marketing operations in Asia region. The company’s effort to de-carbonize the energy system was reconfirmed as it targets to attain 20% of its global fuel station sales from electric vehicles recharging and fuels with a lower level of carbon by 2025.

Expanding Asia Operations

The oil major has 43,000 fuel stations in 80 countries and is now trying to reach the fuel markets of China and India, the two most populous countries in the world with high demand for energy. Shell is also eyeing the Indonesian fuel market. The company believes there will be continued growth in the Asian market over the next decade.

In connection with Shell’s strategy to invest in growing Asian markets, we would like to remind investors that Shell had opened its first service station in Mexico earlier this month and over the next 10 years the company plans to invest $1 billion here.

De-carbonizing Attempts

Shell’s Vision

Shell believes that the share of electric and hybrid-engine vehicles will rise from just a fraction of the world’s car fleet now to at least a quarter by 2040. The shift to low polluting alternatives like hydrogen and natural gas from big oil will change the demand pattern in the energy industry. Keeping this in mind, the company wants to reach a level where 20% of the fuel it offers at its stations will be of low carbon intensity by 2025. Low carbon fuels include biofuels, battery recharging and liquefied natural gas (LNG).

Initiatives So Far

The company has launched vehicle recharging stations as pilot projects in California, Britain and the Netherlands. Shell has plans to built hydrogen fuel stations in Germany. Shell is changing its marketing business according to the change in demand pattern, which focuses more on alternative fuel.

Another oil major, ExxonMobil Corporation XOM is following the similar path. It is focusing on producing low carbon fuels like LNG to meet the changes in global energy demand pattern.

Profit Mantra

Following the global oil price crash, Shell’s downstream activities increased rapidly. The company made $5 billion in profit from its downstream activities in the first half of 2017. During this period, the company received $2 billion in profit from marketing business. The changes in the oil industry forced the company to shift its focus to marketing operations from refining activities. In the last 10 years, the company divested approximately a fifth of its refineries. This has reduced the effect of low crude price on the company’s balance sheet.

Shell’s peers like BP plc BP are also treading similar paths. BP is planning to form a joint venture with Marks and Spencer Group plc MAKSY to draw consumers to its fuel stations in Britain.

About Shell and Zacks Rank

Headquartered in The Hague, Netherlands, Shell explores for and extracts crude oil, natural gas, and natural gas liquids. The company transports oil and gas, converts natural gas to liquids to produce and market fuels and other products. It also extracts bitumen from mined oil sands and turns it into synthetic crude oil. Shell also generates electricity from the wind. The company divides its operations into four major segments: Upstream, Downstream, Corporate and Integrated Gas.

In terms of assets, Shell owns a strong and diversified portfolio of global energy businesses that offer attractive long-term growth opportunities. The group’s strong inventory of development projects is likely to drive volumes in the long run.

Shell’s revenues, earnings and cash flow have been significantly hurt by the three-year commodity bear market, while attacks on its local establishments by Nigerian militants have created another major problem.

Shell carries a Zacks Rank #3 (Hold).

Price Performance

Shell’s stock has gained 6.9% year to date against 2.2% fall of the industry it belongs to.

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