Scooping up Shell

Qatar can’t seem to get enough commodities exposure. The emirate’s sovereign wealth fund holds three per cent of French oil major Total, has built up an eight per cent stake in UK miner Xstrata ahead of its planned merger with Glencore and has even dipped a toe into gold. Now it’s adding Shell to the portfolio. Buying into the Anglo-Dutch oil major is a logical next step, given existing strategic ties. The move may even do more to diversify the gas-rich economy’s resource exposure than appears at first blush.

It’s not clear how much of Shell the Qataris intend to buy. As of May 11, their holding was below the three per cent threshold that would require a stock market notification. But the oil major’s sheer size — its $213 billion market cap is double that of Total’s — means that even a small stake would be a significant investment. Not that the Qataris are lacking firepower, with up to $30 billion available to spend this year alone.

Qatar is the world’s biggest liquid natural gas exporter and much of its gas is sold to Asian buyers on oil-linked contracts. So Shell is an imperfect diversification. But oil-linked gas pricing may not endure forever. Rival producers are planning to sell gas linked to low US domestic prices, rather than to oil. In that scenario, Shell could offer an attractive hedge against any fall in global gas prices.

There’s some strategic logic on the side too. Shell is already an important partner for Qatar, with two big projects in the country. Its $19-billion Pearl gas-to-liquids plant 80 kilometres north of Doha is the biggest of its kind in the world. It has also partnered with Qatar Petroleum on a big LNG facility.

Depending on the final size of Qatar’s ultimate stake, Shell could eventually face some awkward questions, such as whether the emirate’s sovereign wealth fund deserves a seat on the company’s board. There may be concern that Shell could end up being overly influenced by Qatar. For now, though, Shell is probably happy that its shares, down 14 per cent in London since January and badly underperforming the broader market, have found a buyer in size.