If new estimates are right, China won't import as much liquefied natural gas as once thought, leaving big energy companies -- particularly Exxon Mobil -- in the lurch.
You wouldn't think that any company, especially a company as savvy as Exxon Mobil (XOM, news, msgs), could overlook China.
But that may be exactly what Exxon Mobil did in formulating its plan to pin the company's growth on natural gas -- and in particular on liquefied natural gas, or LNG.Click graphic to see clickable chartExxon Mobil According to Wood Mackenzie, an oil and gas consulting company based in the United Kingdom, China looks like it will need only half as much additional liquefied natural gas in the decade beginning in 2020 as big energy companies -- among them Royal Dutch Shell (RDS.A, news, msgs), BP (BP, news, msgs), Chevron (CVX, news, msgs) and, yes, Exxon Mobil -- had projected.
Projects such as Exxon Mobil's Qatargas Trains 4 and 5, RasGas and Al Khaleej Gas in Qatar, the South Hook LNG terminal in Wales and the Golden Pass LNG terminal in Texas, which made investment sense when it looked like China would import an additional 16 million tons of LNG annually in the coming decade, now face a scenario in which China would add only half as much to its annual imports.Msn.Video.createWidget('PlayerAd1Container', 'PlayerAd', 300, 213, {"configCsid": "MSNmoney", "configName": "player-money-articles-16x9", "player.vcq": "videoByUuids.aspx?uuids=02432a63-861e-4007-a393-d2828bed8a6c,59bdbdac-23e7-9cd7-fc77-e929fba9bbd2,806ed6e4-ef83-4388-a43c-6a88602cd2ef,0c8c109b-3ae7-4b53-8475-abeab7bb2da8,cd31396e-8cb3-4b84-90ce-58fa50f4945c,b85f5a52-7564-4f48-a843-9b2b911b494d,70a73499-6099-4bcb-a015-a9afc2071633,e3b1a83c-17bf-419c-a34e-c4aa396d22bb,3f2ca698-bea5-4777-b375-60d91df73084,e617f244-adaf-441a-b250-584729384d1c,a1c87324-a933-4100-de64-08e91f1a81bd,97b30799-900b-4936-8f24-105b31a53edb", "player.fr": "iv2_en-us_money_article_16x9-Investing-JubaksJournal"}, 'PlayerAd1');Msn.Video.createWidget('Gallery4Container', 'Gallery', 304, 150, {"configCsid": "MSNmoney", "configName": "gallery-money-articles", "gallery.linkbackLocation": "bottom_left", "gallery.numColsGrid": "3", "gallery.categoryRequests": "videoByUuids.aspx?uuids=02432a63-861e-4007-a393-d2828bed8a6c,59bdbdac-23e7-9cd7-fc77-e929fba9bbd2,806ed6e4-ef83-4388-a43c-6a88602cd2ef,0c8c109b-3ae7-4b53-8475-abeab7bb2da8,cd31396e-8cb3-4b84-90ce-58fa50f4945c,b85f5a52-7564-4f48-a843-9b2b911b494d,70a73499-6099-4bcb-a015-a9afc2071633,e3b1a83c-17bf-419c-a34e-c4aa396d22bb,3f2ca698-bea5-4777-b375-60d91df73084,e617f244-adaf-441a-b250-584729384d1c,a1c87324-a933-4100-de64-08e91f1a81bd,97b30799-900b-4936-8f24-105b31a53edb;videoByTag.aspx%3Ftag%3Dmoney_dispatch%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1;videoByTag.aspx%3Ftag%3Dbest%2520of%2520money%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1"}, 'Gallery4');That would hit all the international oil and gas companies hard, but it would hit Exxon Mobil especially strongly because the company has based its investing strategy on natural gas in general and liquefied natural gas in particular.
What's changed since, say, March, when Exxon Mobil announced it would increase capital spending 4% in 2010, to almost $28 billion, in a big bet on natural gas? And since its purchase of U.S. natural-gas producer XTO Energy for $28 billion?
Here's what: China is going to put new natural-gas-releasing technologies to work faster than previously thought.
Find a broker and start trading onlineUntil very recently, oil and gas industry analysts were predicting that Europe would be the next region to put these technologies to work. The U.S. gas shale boom began in the Barnett Shale formation of Texas and then spread east to Arkansas, Louisiana and, most recently, to the Marcellus Shale formation that underlies most of the Appalachian region. Companies that developed fracturing and drilling technologies to release the gas during that boom had been looking to Europe as the next frontier. The past three to five years have seen an explosion of mapping and exploration from France eastward into Austria.Click graphic to see clickable chartPetroChina But while so much attention was focused on Europe, Chinese energy companies, led by PetroChina (PTR, news, msgs), had started to map, explore and, tentatively, develop natural-gas fields in that country's own shale formations. From that early work, it now seems likely that China will produce 12 billion cubic feet of natural gas a day by 2030 from those shale formations and from continuing investment in coal gasification and coal-bed methane.
That's equal to roughly a fifth of China's current production of natural gas -- and more than enough to change the global economics of natural gas. (For context, U.S. natural gas production will be about 60 billion cubic feet a day this year.) China puts gas pedal to the metal How does rising production of unconventional gas in China change the game?
First, it turns the opportunity for an LNG open-ended boom into a window of opportunity. During the next two or three years, China will need to import LNG in the quantities that energy companies investing in natural gas have projected. But as China's own supplies of gas from unconventional sources gradually come online, a gap will open between what energy companies had projected China would need and what China actually imports.
How liquefied natural gas is made
Second, growing production from unconventional sources in China won't just damp imports of LNG; they'll radically reduce China's need to import conventional natural gas through pipelines from central Asia and Siberia. Recent years have seen a barrelful of deals between China and natural-gas producers in Russia to build pipelines and secure supply. Those deals, like the investment in LNG, now come with a ceiling: By 2020, China still will import natural-gas by pipeline, but it won't need any new pipeline capacity after that date, according to Wood Mackenzie.Third, China now meets a relatively small percentage of its energy needs -- about 4% -- from natural gas. (Coal accounts for 68% of primary energy use, oil for 19%.) That will change as domestic supply grows and as China's government continues its policy of reducing carbon emissions by shifting to natural gas and alternative energy sources such as wind and solar. A likely winner from this shift is CNPC Hong Kong, a subsidiary of PetroChina that looks likely to be the parent company's vehicle for increasing natural-gas distribution. Other names to check out include China Oil & Gas Group and China Resources Gas Group, as well as giant PetroChina.
Continued: 3 more game changersMore from MSN Money and MoneyShow.com
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There are a lot of uses and future uses for natural gas than simply LNG to China. More natural gas vehicles (and stations). More power generating plants (or co-generating plants) running on natural gas (instead of nuclear or coal fired). Municipalities would probably be the biggest factor to building smaller cleaner power generating stations. Municipalities would probably also be the biggest factor for cleaner natural gas fleet vehicles.
The bet isn't whether China will be the sole source of increased natural gas consumption or not (LNG is just a different method for to transport natural gas other than pipelines, it isn't anything magically new and different than natural gas - it is just pressurized into liquid form). The bet is if there will be increased natural gas demand.
And when you think about it, this will increase manufacturing capacity (for natural gas vehicles and generating stations) and construction activity - simplified analysis, but I only have a few words permitted and not a lengthy dissertation.
ReplyReport AbuseVorratus #2Friday, July 30, 2010 9:17:37 AMPerhaps Exxon- as well as the other so-called energy industries- should have known better than to invest in a communist dictatorship... Oh, wait... they want money for nothing and to hell with principles.ReplyReport Abuse1 - 2 of 2PreviousNext_ucf13('0'); _iuc2Om1('MSNPortalInlineComments','Initial_Load_Comment_View','http://articles.moneycentral.msn.com/Investing/JubaksJournal/did-exxon-misplay-bet-on-china.aspx?','en-us');Are you sure you want to delete this comment?Report AbusePlease help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease notify us using the Report abuse form below. We will investigate your report and take appropriate action against offenders. We report all illegal activity to authorities.CategoriesSpam or advertisingChild pornography or exploitationProfanity, vulgarity or obscenityCopyright infringementHarassment or threatOtherAdditional comments(optional)100 character limit To add a comment, pleasesign in/*MSN PrivacyLegalAdvertiseRSSHelpFeedbackSite mapAbout our ads© 2010 Microsoft/*What's changed since, say, March, when Exxon Mobil announced it would increase capital spending 4% in 2010, to almost $28 billion, in a big bet on natural gas? And since its purchase of U.S. natural-gas producer XTO Energy for $28 billion?
Here's what: China is going to put new natural-gas-releasing technologies to work faster than previously thought.
Until very recently, oil and gas industry analysts were predicting that Europe would be the next region to put these technologies to work. The U.S. gas shale boom began in the Barnett Shale formation of Texas and then spread east to Arkansas, Louisiana and, most recently, to the Marcellus Shale formation that underlies most of the Appalachian region. Companies that developed fracturing and drilling technologies to release the gas during that boom had been looking to Europe as the next frontier. The past three to five years have seen an explosion of mapping and exploration from France eastward into Austria.Click graphic to see clickable chartPetroChina But while so much attention was focused on Europe, Chinese energy companies, led by PetroChina (PTR, news, msgs), had started to map, explore and, tentatively, develop natural-gas fields in that country's own shale formations. From that early work, it now seems likely that China will produce 12 billion cubic feet of natural gas a day by 2030 from those shale formations and from continuing investment in coal gasification and coal-bed methane.
That's equal to roughly a fifth of China's current production of natural gas -- and more than enough to change the global economics of natural gas. (For context, U.S. natural gas production will be about 60 billion cubic feet a day this year.) China puts gas pedal to the metal How does rising production of unconventional gas in China change the game?
First, it turns the opportunity for an LNG open-ended boom into a window of opportunity. During the next two or three years, China will need to import LNG in the quantities that energy companies investing in natural gas have projected. But as China's own supplies of gas from unconventional sources gradually come online, a gap will open between what energy companies had projected China would need and what China actually imports.
How liquefied natural gas is made
Third, China now meets a relatively small percentage of its energy needs -- about 4% -- from natural gas. (Coal accounts for 68% of primary energy use, oil for 19%.) That will change as domestic supply grows and as China's government continues its policy of reducing carbon emissions by shifting to natural gas and alternative energy sources such as wind and solar. A likely winner from this shift is CNPC Hong Kong, a subsidiary of PetroChina that looks likely to be the parent company's vehicle for increasing natural-gas distribution. Other names to check out include China Oil & Gas Group and China Resources Gas Group, as well as giant PetroChina.
Continued: 3 more game changersMore from MSN Money and MoneyShow.com
1 | 2 | next >
Check out Jim's top stocks for the next 12 months.
Read how to invest with Jubak's showcase portfolio.
Follow the long-term portfolio from Jim's book "The Jubak Picks."
See Jim's new portfolio to help navigate the treacherous interest-rate environment.
Boy what narrow vision.
There are a lot of uses and future uses for natural gas than simply LNG to China. More natural gas vehicles (and stations). More power generating plants (or co-generating plants) running on natural gas (instead of nuclear or coal fired). Municipalities would probably be the biggest factor to building smaller cleaner power generating stations. Municipalities would probably also be the biggest factor for cleaner natural gas fleet vehicles.
The bet isn't whether China will be the sole source of increased natural gas consumption or not (LNG is just a different method for to transport natural gas other than pipelines, it isn't anything magically new and different than natural gas - it is just pressurized into liquid form). The bet is if there will be increased natural gas demand.
And when you think about it, this will increase manufacturing capacity (for natural gas vehicles and generating stations) and construction activity - simplified analysis, but I only have a few words permitted and not a lengthy dissertation.
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