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MarketScreener Homepage  >  Equities  >  Toronto Stock Exchange  >  Snc-Lavalin Group Inc    SNC   CA78460T1057

SNC-LAVALIN GROUP INC (SNC)
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Buoyant gas industry may be blindsided by renewables

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09/20/2018 | 08:10am CEST
A natural gas drilling rig operates as natural gas piping rises from underground outside  Rifle

BARCELONA, Spain (Reuters) - The global gas industry, boosted by a host of new projects to feed booming demand, is in better shape than at any point in the last five years but analysts warn it is getting ahead of itself, pointing to the rise of renewable energy as a threat.

Commodity merchant Vitol expects trade in liquefied natural gas (LNG) to double to 600 million tonnes annually (mtpa) in the coming years, reflecting forecasts by Russian LNG producer Novatek which sees 700 mtpa by 2030.

To meet that demand, companies are working on final investment decisions for a new wave of mega projects.

"The industry is confident," said Christian Brown, president for the oil and gas sector at Canadian-listed SNC Lavalin, an industrial project management company.

"So far this year, we have bid almost twice as much as last year (for available gas projects)," he said. SNC Lavalin made about 36 percent of its $9.3 billion revenues from the oil and gas sector last year.

Brown said the industry was in its best shape since 2014, when a slump in oil and gas <LNG-AS> prices led to aggressive cost cutting and scrapping of projects. He said most growth was coming from U.S. unconventional oil and gas.

"They are fast and furious. Decisions are made quickly," he told Reuters during the Gastech trade show in Barcelona.

RED FLAGS

Still, not everybody is buying into the industry's confidence, warning the fast rise of cheap renewable power generation, backed up by improving battery technology, would increasingly take market share away from the gas industry.

"The oil and gas industry are undergoing major disruption from electrification and renewables," said Bernadette Cullinane, of Deloitte Consulting.

"LNG producers must lower costs to compete with solar plus storage," she said, warning that projects vying for investment, but unable to reduce costs enough to compete with renewables, were likely fail.

Following a sharp price falls in panel costs and improvement in efficiency, global solar power capacity has soared from just 15 gigawatt (GW) a decade ago to around 400 GW now, data from the International Renewable Energy Agency (Irena) showed. Most forecasts expect capacity to double again by the mid-2020s.

"We are an industry in flux. There are public policies in place around the world and technology developments that fundamentally challenge the gas industry outlook," said Deepa Poduval, senior managing director for oil and gas at U.S. engineering, procurement and construction firm Black & Veatch.

The gas industry is growing by just 1 to 2 percent annually, said Dumitru Dediu, who leads the global gas and LNG group at consultancy McKinsey & Company.

Judging by sales of large gas turbines, growth may slow further, with orders down from the equivalent of 70 GW sold at the start of the decade, to less than 30 GW this year, according to GE, one of the major turbine makers.

Siemens, another leading turbine maker, said growth of renewables was the main reason for a 56 percent fall in profits from its power and gas division in the third quarter.

"Given how fast this disruption is occurring, we believe the oil and gas industry must act now," Deloitte's Cullinane said.

(editing by Sabina Zawadzki and Robin Pomeroy)

By Henning Gloystein

Stocks mentioned in the article
ChangeLast1st jan.
CHENIERE ENERGY, INC. 1.49% 67.98 Delayed Quote.24.41%
GENERAL ELECTRIC COMPANY -3.53% 11.74 Delayed Quote.-32.72%
NOVATEK PAO --End-of-day quote.
SIEMENS 0.77% 111.86 Delayed Quote.-5.09%
SNC-LAVALIN GROUP INC -1.21% 53.12 Delayed Quote.-6.89%
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Financials (CAD)
Sales 2018 10 636 M
EBIT 2018 864 M
Net income 2018 602 M
Debt 2018 2 212 M
Yield 2018 2,06%
P/E ratio 2018 20,81
P/E ratio 2019 15,05
EV / Sales 2018 1,08x
EV / Sales 2019 0,94x
Capitalization 9 325 M
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Mean consensus OUTPERFORM
Number of Analysts 12
Average target price 71,5  CAD
Spread / Average Target 35%
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Managers
NameTitle
Neil Alexander Bruce President, Chief Executive Officer & Director
Kevin G. Lynch Chairman
Sylvain Girard Chief Financial Officer & Executive Vice President
Eric D. Siegel Independent Director
Jacques Bougie Independent Director
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