Sheila McNulty Majors continue LNG investments with eye on niche market

Despite the sharp drop in demand for natural gas, the world’s biggest international oil companies are continuing to make massive investments in liquefied natural gas (LNG) projects.

For they must invest now if they are want to meet rising demand projected in coming years and grow a niche business for themselves.

These massive LNG production projects are, by their very nature, long-term investments that require at least five years and billions of dollars and superior project management skills to develop.

The majors tend to be well-equipped to carry them out, given decades of project management experience, the technical know-how, and deep pockets backed by strong financing capabilities.  And they want to keep this market to themselves.

LNG is a key avenue of growth for the majors, which have found it increasingly difficult to access new resources, given the growing resource nationalism in oil-rich nations that control almost 90 per cent of the world’s oil reserves.

That is why, according to Nikos Tsafos, analyst in PFC Energy’s Upstream & Gas group, the majors are staying the course with LNG: “Although the short-term looks bad, that’s not dissuading companies,” he said.

In Papua New Guinea (PNG), there are reports ExxonMobil is seeking financing for its $10bn project with Oil Search of Australia; Santos of Australia; Nippon Oil of Japan and PNG landowners.

The PNG government sold its 17.6 per cent interest in Oil Search, which holds a 34 per cent project stake, to Abu Dhabi’s International Petroleum Investment Company to raise $1.1bn in November for funding.

And South Korea’s state-owned trade financier, the Korea Export-Import Bank, has said it is proposing financial support in exchange for long-term gas supplies.

China National Offshore Oil Corporation, China’s state-owned oil company, is negotiating to enter another project with Petromin, PNG’s state-owned oil company, and help with financing.

In Australia, the massive Chevron-led Gorgon project received new environmental approvals last month.

AMEC, the international engineering and project management company, just announced an award by INPEX of Japan for the Front End Engineering Design on the Ichthys Field. Various other LNG projects in Australia are undergoing such design, the last step before construction.

Chevron has seven LNG projects in various stages and, by 2016, its LNG production is to more than triple, to about 300,000 barrels of oil equivalent per day, which is 12.6 million metric tonne per annum (mmtpa).

While Chevron is projecting the largest percentage increase among the majors, according to a new PFC report, the largest 2016 capacity will belong to Royal Dutch Shell, with  21.27 mmtpa in 2016, followed by Exxon with 19.16 mmtpa, and BP with 14.21 mmtpa.

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Oil and gas prices: Why have they diverged, and when will it end? (FT Energy Source, 03/06/09)