U.S. energy behemoth Chevron Corp. (CVX) has entered into a deal to sell 300,000 tons of liquefied natural gas (“LNG”) per annum from its Gorgon venture in Australia. The company said that its Australian subsidiary has signed a long-term agreement in this regard with Japanese utility Kyushu Electric Power Co.
Per the contract, whose financial terms were not disclosed, Chevron would provide LNG to Kyushu Electric for a period of up to 20 years, beginning in 2015.
Chevron Australia holds an approximately 47% operated interest in the A$43 billion ($37 billion) Gorgon development. The other partners are ExxonMobil Corp. (XOM) and Royal Dutch Shell PLC (RDS.A). The Gorgon gas fields, off the coast of Western Australia, are estimated to contain 40 trillion cubic feet of gas deposits with an expected economic life of at least 40 years from the time of start-up.
Chevron has said that the venture will have an annual capacity to produce 15 million tons of LNG, with the first shipment expected in 2014. In September 2009, the project was given the final go-ahead by the joint venture partners following the receipt of necessary government approvals.
As of now, the Gorgon project comprises three production trains and a gas plant, to be built in the Barrow Island nature reserve. Within the next few months, the three partners are expected to take a call on expanding the number of trains to five.
The Kyushu Electric agreement follows Chevron’s multiple deals with Japanese and South Korean companies to sell a major portion of LNG from its Gorgon LNG development. Incidentally, Japan and South Korea are the world’s top two importers of LNG.
We believe that the sales contract represents an important milestone in Chevron’s efforts to commercialize its share of LNG from the Gorgon project. The company expects further sales of Gorgon LNG in the coming months. ExxonMobil and Royal Dutch Shell have already signed deals to sell most of their share of the Gorgon production to Asian importers, including PetroChina Co. Ltd. (PTR).
The business environment for LNG remains robust, with demand likely to grow at around 8−10% annually over the next few years in all the major markets. The Gorgon project provides Chevron and its partners an attractive strategic position for serving the fast-growing economies of China and India, plus other Asian countries.
San Ramon, California-based Chevron is the second-largest U.S. oil company by market value after ExxonMobil. It is engaged in oil and gas exploration and production, refining and marketing of petroleum products, manufacturing of chemicals and other energy-related businesses.
Chevron shares currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.
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