Chevron (NYSE: CVX) Angola LNG Investing

LNG Shipments Underway


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By Swagato Chakravorty
Tuesday, June 18th, 2013

Chevron Corp. (NYSE: CVX) had a fair bit of trouble with its Angola liquefied natural gas plant, which it acquired in a $10 billion deal. The plant underwent fires, labor problems, and slowing demand thanks to the North American shale glut, but it has finally shipped out its first cargo after a year and a half of delays.

lng exportAngola shipped out the gas to Sonangol EP, and it appears the plant has several more sales lined up. That is undoubtedly a bit of welcome good news for Chevron, which has invested heavily on LNG as part of its game plan moving forward.

Indeed, Chevron intends to boost worldwide production of LNG by 20 percent by 2018. That’s roughly 3.3 million barrels of crude per day. To that end—Bloomberg reports—the company has already invested in excess of $77 billion in Australian LNG projects.

Last December, Chevron also made another significant investment, acquiring a 50 percent share of the yet-to-be-completed Kitimat LNG facility in western Canada.

From Bloomberg:

“First gas at Angola LNG is an important milestone in support of our strategic plan to grow our production,” George Kirkland, vice chairman of San Ramon, California-based Chevron, said in a statement distributed by Business Wire today. “This project will commercialize natural gas resources in western Africa to meet growing demand in the region and internationally.”

The Angola facility boasts a capacity of 5.2 million metric tons per year, and as of now it plans to send out a few shipments over June and July before suspending operations temporarily to carry out routine maintenance checks. It will then resume shipments in Q4 of this year.

Chevron clearly believes in LNG. In a recent conference, Chevron Chairman and CEO John Watson predicted that worldwide demand for LNG should overtake production within the decade and that this deficit might grow as large as 100 million metric tons per year by 2025. The key drivers of this demand are developing Asian nations, including Japan, South Korea, and Taiwan.

Big Bet on LNG

The Angola project is one of Chevron’s many recent investments in LNG. The company is Angola LNG’s biggest shareholder; it has a 36.4 percent stake. BP Plc (NYSE: BP), Eni SpA (NYSE: E), and France’s Total SA (NYSE: TOT) each own 13.6 percent, while Sonangol owns 22.8 percent.

Angola is a pretty attractive place as far as gas production goes, and it isn't too low on oil, either. Last month, it produced 1.87 million barrels of oil per day, more or less equaling Nigeria’s production volumes.

The facility was developed largely in response to a massive flaring problem. This gas is now being harvested and marketed rather than simply being burned off. Some 125 million cubic feet of gas from what is being produced will be directed toward domestic use.

The Wall Street Journal reports that the original blueprint for the Angola project projected part of the product to be shipped to the U.S. However, the continued expansion of the American shale gas sector meant there was just no room for the Angolan gas.

In fact, the U.S. is stuck with its own sizable flaring problem, and until that’s resolved, there’s little chance gas produced elsewhere would be supplied here. That’s why Chevron decided to shift focus toward LNG-hungry Asian nations, as well as some parts of Europe.

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The Angola facility is the first new LNG project in that area since 2010. Since shale has hogged the limelight for so long, not a lot of attention has been paid to the quieter but steadily increasing demand for liquefied natural gas. Most people are more attracted toward investing in shale.

This puts Angola LNG and Chevron in a decent position as far as the future is concerned. There is not, at present, much new LNG activity foreseen for the near future. If Chevron can leverage its investments in LNG into a leading position, that’d be very good news for investors as well as nations seeing rising demand for LNG.

It’s also good news for Angola; the LNG facility is the biggest single investment in the nation’s entire oil and gas sector. And Angola happens to be the second-largest oil producer in the entire sub-Saharan African region.

The facility allows for Angola LNG to gather, process, sell, and deliver up to 5.2 million tons of LNG each year, making use of a fleet of seven LNG vessels and three loading tankers.

 

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