Shell’s (LSE: SHEL) share price has dropped 14% from its 13 May 12-month traded high of £29.56.

This has mirrored the oil price fall, which largely reflects pessimism over China’s economic growth prospects, I think.

The country has been a key buyer of the oil and gas needed to power its economic expansion since the mid-1990s. Its stellar growth faltered when Covid hit in late 2019, and its recovery has been uncertain since.

However, I believe it will continue to grow stronger again. And Shell is better positioned to capitalise on its opportunities than it has been for several years.

How does China look now?

China’s economy grew 5.2% in 2023 – against a target of “around 5%”. The same objective is in place this year, and recent data has been positive overall, in my view. China’s August trade surplus was $91.02bn from $67.81bn in the same period last year.

Exports increased by 8.7% year on year in the same month to a 23-month peak of $308.65bn. And more broadly, the government signalled late last year that it intends to maintain economic stimulus measures. Its $138bn bond sale in May was the latest such measure aimed at boosting credit in the system.

Even if China grows ‘just’ 5% annually, it will effectively be adding an economy the size of India to its own every four years.

A switch in energy transition approach

March this year saw Shell moderate its previous energy transition deadlines. This aligned with CEO Wael Sawan’s view that its valuation had suffered compared to firms still focused on fossil fuels.

Specifically, it abandoned its previous 2035 deadline for reducing carbon emissions by 45%. It also reduced the minimum decarbonisation to be achieved by 2030 from 20% to 15%. That said, it retains its goal of reaching net-zero status by 2050.

Since then, it has focused its fossil fuel efforts on liquefied natural gas (LNG). Industry forecasts are that demand for LNG will rise over 50% by 2040.

This includes boosting high-value projects in Singapore, the United Arab Emirates, Trinidad and Tobago, and Brazil.

A key risk for Shell, then, is any increase in government pressure to expedite its transition to green energy again.

Boosting benefits for shareholders

Nonetheless, alongside the rollout of this modified energy transition strategy, Shell boosted both interim dividends. The first was increased from 28.75 cents (22p) to 33.4c, and the second from 33.1c also to 33.4c.

2023’s overall dividend was $1.29, which yields 3.9% on the current share price of £25.51. However, consensus analysts’ estimates are that the payout will rise to 4.5% next year and 4.7% by end-2026.

In its H1 2024 results, it also announced a further $3.5bn in share buybacks over the following three months. These tend to support share price gains.

Is there value in the shares?

Shell currently trades on the key price-to-earnings ratio (P/E) at just 11.3. This is the bottom of its peer group, which has an average P/E of 13.6.

The same applies to the price-to-book ratio (1.1 versus a 2.6 average) and the price-to-sales ratio (0.7 against an average of 2.1).

So Shell looks very cheap on this basis, which is why I will add to my existing holding soon. A bonus is the rising yield from a decent 3.9% starting position.