Exxon Mobil Corporation (XOM): Will Natural Gas Decline Further?

Despite Exxon Mobil Corporation (NYSE:XOM)’s decline in natural-gas production, it is planning to augment its natural-gas operations: Back in April, the company entered into a partnership with BHP Billiton Limited (ADR) (NYSE:BHP) to build the world largest floating LNG processing and export plant in Australia. The LNG business is expected to continue expanding in the coming years; Exxon Mobil Corporation (NYSE:XOM) is likely to benefit from this growing industry. Speaking of LNG, let’s examine the recent developments in LNG in the U.S.

Liquefied natural gas

The liquefied natural gas market continues to slowly rise. Moreover, the global demand for LNG has increased in recent years and is expected to rise further in the coming years. Japan’s LNG sharply increased in the past couple of years following the earthquake from March 2011. According to the U.S Energy Information Administration, the U.S will become a net exporter of LNG by 2016. In the meantime, Cheniere Energy, Inc. (NYSEMKT:LNG), the only company allowed to export LNG from the U.S., has benefited from the rise in natural-gas production: Its stock has spiked by more than 60% (year-to-date).

Nonetheless, the company’s revenue fell again by 6.5% in the first quarter of 2013. The expectations of the company to sharply increase its revenue in the coming years are likely to keep the stock rising. Cheniere Energy, Inc. (NYSEMKT:LNG) continues to spend a big chunk of its cash on capital expenditures; in the first quarter of 2013, capital expenditures reached $464 million. The company finances its capital expenditures with debt:  In the past year, Cheniere Energy, Inc. (NYSEMKT:LNG)’s debt grew by more than 37%. It allocates its funds to projects such as Sabine Pass Liquefaction. This means it will take a long while before this company earns a return its investment.

Take away

I think natural gas will continue its downward trend in the coming months, which will slightly pull down the revenue of leading gas and oil companies (but not by much). The LNG market is likely to keep heating up and companies such as Cheniere Energy will eventually produce revenue growth.

The article Will Natural Gas Decline Further? originally appeared on Fool.com and is written by Lior Cohen.

Lior Cohen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Lior 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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