Exxon Fires Up Another Australian Gas Venture As Asian Oversupply Risk Rises

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Exxon Mobil (NYSE:XOM) announced that it would be taking a 10% stake in a coal seam gas venture in Australia [1] in another move that marks the deepening interest of energy companies in developing the gas resources in the country. Energy companies are investing billions of dollars in natural gas projects in Australia, mainly targeting export markets in Asia. Prices of LNG in Asia have shot up over the past year, as countries like Japan are trying to diversify from nuclear power. Analysts however warn that the high prices could result in oversupply by 2017, as exports from North America also make way to Japan and other Asian markets. [2]

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New production

Exxon’s new JV with Ignite Energy will seek to explore 1,460 square miles of land in Victoria, Australia for coal seam gas. [1] Exxon and other energy companies have invested billions of dollars to develop coal seam gas resources in Australia. Exxon is also involved in other major projects in the country, including the A$43 billion gorgon project, in which it holds a 25% stake. The projects are mainly targeting growing natural gas demand from Asia, where LNG prices are currently $13 / Million British thermal units (MBtuc) higher than gas prices in North America. [2] In Victoria however, local demand could be significant as power generation plants shift from coal to gas.

Asian demand

With multiple producers targeting LNG demand from Asia, including gas producers in North America, analysts believe that the Asian market could see an oversupply situation by 2017-2018. [2]  Others however believe that demand for the fuel will continue to see robust growth, despite signs of a slowdown in China. According to some estimates, American producers could meet up to 10% of gas demand in Asia by 2025, altering market dynamics. Energy companies like Exxon will become increasingly dependent on natural gas to drive revenues and profits over the future.

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Notes:
  1. UPDATE: ExxonMobil to Invest in Australia Coal Seam Gas Venture, WSJ [] []
  2. Asia Natgas Demand Strong Amid Risk of Oversupply: Pros, CNBC [] [] []
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