Shell to curb spending, focus more on LNG and increasing dividends

British oil and gas company Shell is changing its strategy, planning lower spending while gradually increasing the amount of cash allocated to dividend payments. It announced the move today in its new strategy, which also envisages increasing sales of liquefied natural gas (LNG). Shell expects global demand for LNG to rise by around 60 percent by 2040.

The company outlined a plan to investors today that would allocate 40 to 50 percent of the free cash flow generated by its core businesses to dividend payments. Until now, the company had set this ratio at 30 to 40 percent. The plan to increase shareholder value also includes share buybacks.

Management, by contrast, plans to cut spending to 20 to 22 billion dollars a year between 2025 and 2028. In its 2023 outlook, the company had said spending for 2024 and 2025 would be in the range of 22 to 25 billion USD a year.

Shell focuses on oil and natural gas production and is also the world’s largest LNG trader. Over the next five years, it intends to increase LNG sales by four to five percent a year, while production is expected to grow by one percent annually. Shell does not plan to change its oil production, which it expects to remain at around 1.4 million barrels a day.

Management says that higher demand for LNG will be driven primarily by economic growth in Asian countries. The expansion of artificial intelligence (AI) and efforts to reduce carbon emissions in heavy industry and transport will also play a role. Shell produced 29 million tonnes of LNG last year, but sold a total of 65.8 million tonnes.

In chemicals production, the company will assess opportunities for strategic partnerships in the United States. In Europe, by contrast, it may close some facilities.