A rival outside the U.S. to compete for Europe and Asian markets
Finally, the last project discussed is Angola LNG. Angola LNG’s operation is located in Soyo, 195 miles north of Luanda in Zaire Province, Angola. The project is a joint-venture that includes Chevron Corporation (NYSE:CVX), with a 36.4% stake. The project has a one-train plant of nominal 5.2 million tons per year of LNG production capacity and includes production of NGL and condensate.
Angola LNG should start producing as expected by Q2 2013. As a matter of fact, the potential of the project is estimated at 125Mcf/d of natural gas and it should be available from the date of plant start-up. Chevron Corporation (NYSE:CVX)’s share of production would be about 45.5Mcf/d, a growth of 0.9%, for a total increase of 16,607.5Mcf/d annually. Therefore, according to Chevron’s 2012 annual report, this added production would translate in sales on the U.S. market of $123,305 per day. On the international market, it would translate in sales of $273,000 per day.
Chevron Corporation (NYSE:CVX) also counts several LNG projects worldwide. The Chevron-operated Wheatstone Project located at Ashburton North in Australia, includes a two-train 8.9 million tons per annum LNG facility with maximum daily production of 1.4 billion feet of cubic natural gas. Moreover, The Gorgon Project, located also in Australia, includes a 15 million tons per annum LNG facility on Barrow Island.The project is a joint-venture operated by Chevron with about 47% ownership interest. Chevron’s shareholders are well-served in the LNG plays worldwide with the current projects under way and the company plans to benefit as much as possible to move the LNG to Europe and Asian markets where the prices of natural gas can reach levels up to 14$/MMBtu.
Bottom line
LNG demand in Asia is huge compared with the rest of the world. Counting the capacity of production of the Asia-Pacific region, the capacity can be roughly assessed at 13Bcf/d which is significantly insufficient to fill the need of an average 22Bcf/d of LNG, according to Cheniere’s March 2013 corporate presentation. Thus, LNG will be in great demand; and with prices three times the average price of U.S. natural gas, exporting companies like ConocoPhillips (NYSE:COP) will be very profitable. Furthermore, according to its 2012 annual report, the company is estimating its net proved reserves at the end of last year, at 3.27Bboe of natural gas from 3.49Bboe the year before, totaling 8.6Bboe of liquids and total resources of 43Bboe. However, crude oil has increased slightly at 2.78Bboe compared to 2.74Bboe in 2011.
According to a new report by ICF International, which analyzed the potential impacts of exporting U.S. LNG. LNG exports would have a net positive effect on the U.S. economy, and the companies willing to export it would be very beneficial. As a matter of fact, the cost of new LNG export terminals would be in the range of $700 to $1,000 per TPA. Then, the capital cost of supplying gas to the terminal depends on North American natural gas market conditions. Assuming a delivered gas price around $6.00/MMBtu implies upstream and midstream investment cost around $2/Mcf which would be about $2,038 per TPA for a 20-year project life. By doing the math, it is easy to understand the benefits of exporting U.S. LNG these days as well as the impressive amount of companies listed on the DOE’s study for export licenses.
Finally, the report studied the impacts of export scenarios ranging from 4Bcf/d to 16Bcf/d if not limited by government regulation. Therefore, the projection is that U.S. LNG exports could have 12% to 28% market share of new LNG contract volumes in 2025 and 8% to 25% percent in 2035.
Currently, ConocoPhillips (NYSE:COP) offers a dividend yield of 4.17% which is more appealing than its industry average of 3.31% or its sector average of 2.72%. I recommend to open a long position on the stock to benefit from the shares’ growth when the terminal will start the exports. The stock closed recently over $63, and even if it is overvalued at this time, (Morningstar assessing its value at $59,) I believe that the current price will be a great deal three years from now.
The article ConocoPhillips Long-Awaited Approval of Freeport LNG Now a Reality originally appeared on Fool.com is written by Stephan Dube.
Stephan Dube has no position in any stocks mentioned. The Motley Fool recommends Chevron and Dominion Resources. Stephan 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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