The newest member to join the list of biggies like Shell, Chevron, Apache to seek license to export LNG from British Columbia is one of the oil and natural gas sector’s biggest players in the world, Exxon Mobil Corporation (NYSE:XOM). And why not, when the prospect of the project involves shifting LNG to one of the world’s most energy-hungry countries at a huge price premium?
Why LNG?
The advent of technologies like hydraulic fracturing and horizontal drilling has led to large-scale discoveries of oil and natural gas in North America. This led to a reversal of natural gas flow in North America and a glut in supply was created, bringing down natural gas prices. As a result, the natural gas producers are finding it difficult to maintain a profit margin on their production and are looking for ways to sell natural gas elsewhere at a profitable price. And this search has landed them on the Asian countries, which, riding on their growth prospects, are huge potential markets for natural gas companies. Cheniere Energy, Inc. (NYSEAMEX:LNG) was the first company to grasp this opportunity.
Cheniere was the first to get a license to export natural gas to the Asian and European shores. The company converted its Sabina Pass LNG import terminal to an export terminal capable of processing 2 billion cubic feet of natural gas per day. Cheniere Energy, Inc. (NYSEAMEX:LNG) reported a net loss of $42.5 million for the three months ended March 31, compared to a net loss of $19.3 million for the same period last year. But with the export license in its grasp, the fortune of the company is expected to change in the near future as soon as the LNG terminal becomes operational.
Why target Asia?
Asia is one continent where natural gas is trading at a price almost four times to that in the US. Japan is the world’s biggest importer of LNG, and especially after the Fukushima Daichi incidence the demand for a greener source of energy like natural gas should only increase. Countries like China and India are also not far behind, and riding on their development spree, they offer huge growth prospects for energy sources like natural gas in the coming future. This makes Asia a prime target market of all oil and natural gas companies, and Exxon Mobil Corporation (NYSE:XOM) doesn’t want to be left behind in serving this energy-hungry region.
Neither Canada’s nor Exxon’s first project
Earlier, Canada granted license to Royal Dutch Shell plc (ADR) (NYSE:RDS.A) to export LNG from the west coast of Canada. Shell has been awarded a license for 25 years with an annual export of 24 million tons of gas. Shell reported its first quarter profit in 2013 to be $7.5 billion, excluding one-time items and inventory changes, an increase of 3% with respect to the same period last year. Royal Dutch Shell plc (ADR) (NYSE:RDS.A) is capitalizing on the strategic position of British Columbia along with taking advantage of the glut of supply of natural gas.
The 30 million-ton LNG terminal that Exxon Mobil Corporation (NYSE:XOM) is proposing to build to serve the Asian countries is not the only LNG project that the company has in its closet. If British Colombia is strategically poised to serve the Asian market due to its geographic proximity to the Asian continent, then so is Australia and Papa New Guinea. Exxon already has some projects underway in Australia and Papa New Guinea, keeping in mind the huge demand and price premium available in the Asian countries. It is also showing interest in InterOil’s discoveries in the country to expand the $19 billion PNG LNG export project.
Foolish takeaway
Exxon Mobil Corporation (NYSE:XOM) is not the only company to apply for a license to export LNG from the western coast of Canada, but surely one which has both the required expertise and capital. Exxon – along with Shell and many others – is betting big on LNG and is trying to grasp the opportunity available in the Asian markets. If Exxon is successful in getting the license, it would not only be beneficial for the company, but also for the industry as a whole. With new markets to cater to, the decline in production of natural gas in North America will witness a reversal and lead to higher production levels. The stock is surely worth watching for this reason.
The article Exxon Foraying Into LNG Export From Canada originally appeared on Fool.com and is written by Satarupa Bose.
Satarupa Bose has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Satarupa is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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