While certain global producers are showing signs of slower growth, the United States is still on track to overtake Saudi Arabia and Russia to become the world’s largest oil producer in the next few years. As such, the U.S. energy boom has encouraged domestic companies to ramp up production and explore new opportunities both at home and around the globe [for more commodity news and analysis subscribe to our free newsletter].
In a recent report, Chevron (CVX), one of the leading names in the oil and gas industry, is reportedly in talks with potential buyers for Canada’s first exports of liquefied natural gas. The project is estimated to cost $15 billion and would create a new route for North American gas to Asia.
Tapping Into China’s Demand
According to the U.S. Energy Information Administration (EIA), China is the sixth-largest consumer of natural gas in the world, consuming more than 4.6 trillion cubic feet in 2011. Since 2007, the behemoth economy has been a net natural gas importer, with import demand dramatically increasing in the past few years as China’s thirst for the fossil fuel continues its rapid growth. In 2011, China imported over 1 trillion cubic feet of liquefied natural gas and pipeline gas to fill its demand gap [see A Deeper Look at China's Commodity Industry].
As such, Chevron’s plans for its Kitimat LNG plant look quite promising for the future. The plant, located on Canada’s west coast, is estimated to hold 50tn cubic feet of gas–more than enough to satisfy China’s yearly demand. And since the company has made significant progress on its Gorgon and Wheatstone LNG projects in Australia, investors feel quite optimistic about this new project.
Potential Headwinds?
According to reports, the project is a 50-50 joint venture between Chevron and U.S. independent oil and gas group Apache. The project has already acquired an export license and permission to build a pipeline that would export shale gas from fields in British Columbia [see Company Spotlight: Chevron Corporation (CVX)].
“This agreement is a milestone for two principal reasons: Chevron is the premier LNG developer in the world today with longstanding relationships in key Asian markets, and the new structure will enable Apache to unlock the tremendous potential at Liard, one of the most prolific shale gas basins in North America,” stated Apache’s chairman and CEO Steven Farris.
Despite the optimism, some investors have expressed concern over Chevron’s decision to price the gas in relation to oil, which is considerably higher than the price of natural gas. Chevron’s chief executive John Watson argues that “it’s going to take very significant gas prices, because of what it costs to liquefy it, transport it, regasify it and then distribute it” to markets in Asia.
Whether or not this proves to be a headwind for the project, Chevron’s new venture still has quite a promising future.
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Disclosure: No positions at time of writing.
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