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Massive LNG Investment for Exxon (NYSE:XOM)

LNG Joint Venture with BHP Billiton (NYSE:BHP)

Written by Jon Carter
Posted March 26, 2013 at 6:28PM

Two heads are better than one—or at least that would be the case with Exxon Mobil (NYSE:XOM) and BHP Billiton (NYSE:BHP). The companies are planning a floating liquid natural gas ship off the coast of Western Australia.

Talks are underway, and nothing has been finalized, but if the proposal goes through, Exxon and BHP will become a formidable force in liquid natural gas (LNG). The joint venture vessel is expected to be the world’s largest FLNG project.

The companies are one week away from submitting their proposals for federal review. The moving vessel will be used in the development of Exxon and BHP’s joint venture Scarborough field. The Scarborough field is located offshore in Australia’s Carnarvon Basin, The Australian reports.

According to Fox Business, the extraction ship is expected to procure around “7 million metric tons a year of liquefied natural gas.”

Floating LNG
Source: The Energy Collective

FLNG ship planning has little competition, and it is a chance for oil and gas companies to dream big and get the creative juices flowing. To date, no floating liquid natural gas vessels are in operation, but there could be a wider market in the future and favorable rewards for companies that choose to invest in planning much earlier. Exxon and BHP will have a chance to become a leading force in floating technology if they follow through with their plans.

Royal Dutch Shell NYSE (NYSE:RDS.A) has a FLNG vessel in the works, but the new Exxon-BHP plan would blow their competitor out of the water (no pun intended).

The Shell plan was already large enough, but the Exxon-BHP ship will yield twice the amount of LNG. Woodside Petroleum (ASX:WPL) is partnered with Shell in setting up a FLNG vessel near the same body of water.

The new Exxon-BHP plan would also undermine Woodside efforts in expanding its export center in Western Australia.

The new proposal with Exxon comes shortly after BHP decided to sell its ten percent share from the Browse project in the Scarborough region, The Australian reports. The Browse project was where Shell and Woodside wanted to place their new FLNG vessel, but Western Australian Premier Collin Barnett opposed the plan, fearing the move would foster job losses and a drain of Australia’s natural resources.

Since Woodside joined with Shell, BHP signing on with ExxonMobil would not only secure a larger vessel, but could also forestall the Shell/Woodside proposal as both companies wrangle with the government.

BHP and Exxon could run into the same roadblock if Barnett has objections with their FLNG project, but Resource Minister Gary Gray, someone who is interested in FLNG projects, could override the WA government.

Natural gas is considered a national treasure by governments because it is a way to earn revenue and become a player in the world energy market. Since Australians do not rely on natural gas as heavily as other nations, the government could be looking for export revenues from developing countries in Asia.

The natural gas industry is becoming quite competitive around the world, as more companies are searching for the next spring of fuel resources. It will be hard for any company, joint venture or not, to topple the FLNG project proposed by Exxon and BHP.

There has been more emphasis on land drilling, but the offshore market can be reinvigorated with new technology and extraction practices like mobile production vessels. As land drilling becomes more expensive, it makes sense for companies to shift focus offshore. It is a way of diversifying resources and making sure that companies have a foothold into expansive territories.

Mobile vessels would also conform to environmental regulations, and it would be an unexpected move as more companies focus on shale rock regions and other gas-rich projects. A mobile vessel will also be more versatile in reaching gas reserves in a shorter time span.

The rising demand of fuel resources around the world has caused companies to look for whatever oil or gas resources that can be attained. Natural gas is cheaper than oil, and it is something that nations can tap into when it comes to decreasing oil exports and boosting their economies. It may seem that companies are regressing in renewing interest in offshore drilling, but the new technologies available can be used to get more resources from the seas.

It must be remembered that Exxon-BHP plan is simply that: a plan. It will take more investment and commitment if both companies will pull off such a large LNG project.

And both companies should be worried about other companies looking to take the mantle of the world’s largest FLNG project. 


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