To tap the roaring demand for gas amidst record-high prices, Shell (GB:SHEL) revealed that it has approved the development of the Crux gas field off Australia, which could cost around $2.5 billion, according to Reuters.
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The Crux project will tap into the potentially growing demand from Asian customers. The production will help them switch to gas from coal while also alleviating supply challenges heightened by the Russia-Ukraine conflict and the resulting sanctions on Russia by the west.
Details of the Crux Project
The first production from Crux is expected to start in 2027, approximately four years after the start of construction activity, which is scheduled to begin in 2023.
Upon the start of the production, Crux gas is expected supply 3.6 million tons a year to the Prelude Floating Liquefied Natural Gas (FLNG) facility. Prelude FLNG is owned by Royal Dutch Shell
Though the company did not disclose the expected outlay for the project, it may cost about $2.5 billion, according to the energy consultants Wood Mackenzie.
Management’s Commentary
Wael Sawan, Director of Integrated Gas, Renewables and Energy Solutions at Shell, commented, “The use of Prelude’s existing infrastructure enables significantly reduced development costs, making Crux competitive and commercially attractive.”
Wall Street’s Take
Last week, Societe Generale increased its price target on Shell to GBP27 (12.34% upside potential) from GBP22 and reiterated a Buy rating on the stock.
Overall, the stock has a Strong Buy consensus rating based on 11 Buys and one Hold. The average Shell (UK) stock forecast of GBp 2,685.54 implies 11.69% upside potential to current levels.
TipRanks’ Smart Score
SHEL scores a 9 out of 10 on TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.
Concluding Thoughts
Robust demand for oil and gas is here to stay and will remain undiminished in the coming years.
Shell’s decision to bump up production couldn’t come at a better time when gas prices are touching record highs, averaging around $4.619 a gallon, up a whopping 51.7% compared to the year-ago period.
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