Chevron Corp. (CVX) – the second-biggest U.S. energy company – entered into a deal to sell 1.44 million 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 firm Chubu Electric Power Co.
As per the contract, Chevron would provide LNG to Chubu Electric for a period of 25 years. The agreement would also see Chubu Electric acquire 0.417% of Chevron’s equity share in the Gorgon project. Subsequent to the sale to Chubu, Chevron Australia will hold about 47% operated interest in the A$43 billion ($37 billion) development, with the other partners being 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 and have an expected economic life of at least 40 years from the time of start-up. Chevron 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, the project was given the final go-ahead by the joint venture partners following the receipt of the 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 12-18 months, the three partners are expected to take a call on expanding the number of trains to five.
The Chubu Electric agreement follows Chevron’s multiple deals to sell nearly 4.5 million tons of LNG from the Gorgon LNG venture to South Korean energy companies GS Caltex and Korea Gas Corp., as well as two Japanese companies, Osaka Gas and Tokyo Gas. Incidentally, Japan and South Korea are the world’s top two importers of LNG.
We believe that the sales contracts represent 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 much of their share of the Gorgon production to Asian importers, including PetroChina Co. Ltd. (PTR).
The business environment for LNG continues to remain robust, with demand likely to grow at around 8−10% annually over the next few years in all 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 one of the largest publicly traded oil and gas firms in the world, based on proved reserves. It is engaged in oil and gas exploration and production, refining and marketing of petroleum products, manufacturing of chemicals and other energy-related businesses.
We currently rate Chevron shares as Neutral.
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