Wednesday, June 11, 2014

Why ExxonMobil's US$19 billion LNG project is a big deal

The role of liquefied natural gas, or LNG, is increasing among the integrated oil and gas super-majors. Giants like ExxonMobil (NYSE: XOM  ) and Chevron (NYSE: CVX  ) are spending huge amounts of money to build massive LNG plants around the world.
For these two behemoths, the tantalizing potential of emerging market energy demand has prompted each one to build LNG facilities in the Asia-Pacific region. Chevron management stated in its last presentation that LNG demand will nearly double by 2025.
For ExxonMobil, its Papua New Guinea LNG plant is an exciting catalyst because of its enormous production potential. And, this potential is getting very close to materializing since the company just took the first LNG shipment.
This marks the beginning of a long and highly profitable journey for ExxonMobil, one that will leave it and its shareholders measurably better off.
LNG from PNG
ExxonMobil has a large number of high-profile projects lined up this year, so it might be easy to overlook an individual project in such a far place as Papua New Guinea. But you'd be wise to pay close attention to this particular LNG project because its production potential is truly amazing.
Over the $19 billion project's expected 30-year lifespan, ExxonMobil expects to produce 9 trillion cubic feet of gas. Each year, project capacity is pegged at 6.9 million tonnes. The first shipment just occurred, headed to Tokyo Electric Power in Japan, ahead of schedule. Other major customers for the project's output include China Petroleum and Chemical and Osaka Gas. Production toward a second shipment is ongoing now that additional wells are coming online.
The project is an integrated one, with gas production and processing facilities stretched across several provinces of Papua New Guinea. These facilities, which include a gas conditioning plant and liquefaction facility, are connected by roughly 435 miles of pipelines.
In a statement, Neil W. Duffin, president of ExxonMobil Development Company, stated:
The PNG LNG project exemplifies ExxonMobil's leadership in project execution, advanced technologies[,] and marketing capabilities. Our demonstrated expertise will enable us to progress other LNG opportunities in our portfolio, including expansion opportunities in Papua New Guinea and to meet growing global demand.
This project mimics Chevron's own huge LNG projects, which are situated in Australia. The end result for both companies is to serve the large (and growing) demand for energy in the emerging markets, Asia more specifically.
Chevron is nearing completion of two separate projects in Australia called Wheatstone and Gorgon. Wheatstone is a $29 billion project which includes two LNG trains with a combined capacity of 8.9 million tonnes per annum and a domestic gas plant. First shipments are expected in 2016. Meanwhile, the Gorgon development is one of the world's largest LNG projects. Gorgon is about 80% complete, and management expects first shipments next year.
Why LNG matters
Liquefied natural gas holds great promise. As a liquid, it's much easier and more cost effective to store and ship. In fact, LNG occupies up to 600 times less space, according to an industry report from Royal Dutch Shell.
And, since energy demand across the globe is set to rise in the near future, LNG represents a huge opportunity.
It should come as no surprise, then, that integrated super-majors ExxonMobil and Chevron are getting ready to begin production on their own LNG projects. Both companies have situated massive LNG production facilities near Asia to easily accommodate the rising demand from Japan, China, and other nations.
ExxonMobil's $19 billion LNG facility in Papua New Guinea just shipped its first cargo, an exciting start to a long and highly productive venture. LNG will surely assist in getting production going in the right direction again for both companies, which couldn't come at a better time.

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