Chevron’s Angola LNG Project Will Help Slake International Gas Demand

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Chevron (NYSE:CVX) reported its first liquefied natural gas (LNG) shipments from the Angola LNG project recently. [1] The company holds a 36.4% stake in this $10 billion project and is expected to see an uptick in production volumes of both natural gas and natural gas liquids form the project. Chevron is also expected to gain from better average price realizations for its global natural gas sales. With the Angola LNG project online and several others under development, the company increasingly relies on natural gas production and its planned LNG facilities to drive future growth.

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The Angola LNG Project

Other than Chevron, state-owned Sonangol holds 22.8% while BP, Total and ENI each holds a 13.6% stake in the Angola LNG project. The project kicked off in 2008 with the initial target of starting shipments by early 2012. However, the project was delayed by more than one and a half years due to a couple of fire incidents caused by technical glitches at the plant among other issues. The $10 billion project with an expected life of at least 30 years includes infrastructure required to transport natural gas gathered from offshore Angola to the liquefaction plant with the capacity to produce 5.2 million metric tons of LNG per year. At its full capacity, the project will also produce 63,000 barrels of natural gas liquids per day which will also be exported as well as 125 million cubic feet per day of natural gas for domestic consumption. [2]

How Will Chevron Benefit From This Project?

With its 36.4% operating stake in the project, Chevron’s natural gas production is expected to increase by 45.5 million cubic feet per day, which translates to almost 1% growth over its 2012 consolidated natural gas production of 4.74 billion cubic feet per day. Its crude oil and natural gas liquids production volume will also grow by almost 23 thousand barrels of oil per day or growth of more than 1.5% over its 2012 crude oil and natural gas liquids production of 1,464 thousand barrels per day.

Although the project does not provide a significant boost to Chevron’s upstream production volume, it will help the company realize higher average prices for the natural gas produced by its offshore oil fields in the region. This is because the LNG facility will facilitate the transportation of natural gas to geographies where its prices are much higher than in Western Africa.

The project will also increase the return on investment on Chevron’s crude oil production facilities offshore Angola as the plant is designed to use natural gas produced during the production of crude oil from these facilities, which also reduces the issue of flaring at the same time. Chevron has interest in four concessions in Angola: Block 0, off the coast of Cabinda province; Block 14, in deep water; Block 2, offshore northwest Angola; and the onshore Fina Sonangol Texaco area. The company realized an average daily production of 128,000 net barrels of liquids from these assets in 2012. [3]

Upstream Targets Focused on Natural Gas

Chevron’s upstream division expects to boost its oil and natural gas production by more than 20% by 2017, over its 2.6 million barrels of oil equivalent (BOE) per day produced in 2012. It should be noted that natural gas production is expected to play a crucial role in the company’s ambitious growth plans. The company has been spearheading the development of natural gas in Australia with around 47% stake in the Greater Gorgon Area, the country’s biggest domestic source of the natural resource. Its mega-scale $52 billion Gorgon Project, which is expected to produce more than 450,000 BOE per day at full capacity, includes 8.9 million-metric-ton-per-year LNG facility.

The LNG facility will ensure easy transportation of natural gas to the fast growing Asian economies. Scheduled to begin operations in 2014, the project forms the centerpiece of Chevron’s production volume ramp-up plan. Apart from Gorgon, the company also has significant interests in other large scale, upcoming projects in Australia such as the $29 billion Wheatstone LNG project. In December last year, the company also acquired a 50% stake in the proposed Kitimat LNG terminal on Canada’s Pacific Coast.

Chevron’s focus on natural gas was justified by John Watson, Chairman and CEO of Chevron, as he pointed out during a presentation in March this year that the growth in global LNG demand is expected to outpace production growth which could lead to deficit of around 100 million metric tons a year by 2025. Most of the incremental demand is expected to come from Asian countries such as Japan, South Korea and Taiwan where natural gas prices are also very lucrative. [4] The company expects to gain from selling incremental LNG produced from its operations in Australia to these countries.

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Notes:
  1. Chevron Confirms First Cargo from Angola LNG, www.chevron.com []
  2. Project provides new source of LNG to help meet global demand, www.angolalng.com []
  3. Angola Fact Sheet, www.chevron.com []
  4. Chevron’s 2013 Security Analyst Meeting, www.chevron.com []
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