The Battle Over the Future of Shale Gas Exports: The Dow Chemical Company (DOW), Exxon Mobil Corporation (XOM), Chevron Corporation (CVX)

The indicative sign of the increasing interest in American shale gas exports is the recent active project sponsorship by major oil companies through equity ownership. I’ve already mentioned Exxon Mobil Corporation (NYSE:XOM)’s position on the issue and what profits it could draw from LNG exports. Chevron Corporation (NYSE:CVX) is also going down the same path. As a company, it is cash rich, boasting as much as $21 billion in cash and equivalents. It is therefore likely to use some of its cash for productive asset acquisitions, in line with its recent purchase of 246,000 net acres in the Delaware Basin in New Mexico from Chesapeake Energy Corporation (NYSE:CHK).

Last December, Chevron Corporation (NYSE:CVX) also joined Kitimat LNG project on Canada’s West Coast in a joint venture with Apache Corporation (NYSE:APA) to operate the LNG plant and the associated pipeline. The significant purchase price (officially undisclosed but most experts place it at around $1.4 billion) for a 50% interest in the project indicates that the operation has a very good chance of moving forward. Kitimat LNG has already received all significant environmental approvals, and a 20-year export license from the Canadian federal government. Early site work is under way, and the 290-mile Pacific Trail Pipeline will provide a direct connection to Spectra Energy Corp. (NYSE:SE)‘s transmission pipeline system.

Bottom line

For now, only American exploration and production (E&P) companies possess enough capital and technological know-how to develop shale gas on a massive scale. Every foreign government that is serious about expanding its local shale gas industry will have to ask American energy multinational corporations such as Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX) to get involved at some stage. This is why these companies are trying to get a head start in the global shale gas race and benefit from this arbitrage opportunity while they can.

But a good business always attracts competition. China’s shale gas reserves are the largest in the world, and it’s just a matter of time before they figure out fracking for themselves. If the Chinese pull it off, most LNG exports in Asia will be shipped from China and then from Australia. Pitted against these forces, natural gas prices will fall worldwide, and US shale exports will become uneconomical. This won’t greatly affect American energy corporations either way, because they operate on a global scale. But when gas prices go south again, it will be a good moment to be bullish on chemical companies like Dow, because cheaper natural gas prices will allow them to substantially reduce their operating expenses and improve their profit margins.

The article The Battle Over the Future of Shale Gas Exports originally appeared on Fool.com.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.