A Quick Snapshot of Chevron’s Natural Gas Business

by Trefis Team
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Chevron Corporation’s (NYSE:CVX) Natural Gas business accounts for 14% of the company’s value, according to our estimates. Natural gas price movement is closely related to that of crude oil prices. As such, the average natural gas price realization for Chevron was lower in 2015 and 2016. However, a recovery in oil prices since the second half of 2017 led to better price realization in the recent quarters, and this has aided the segment growth. However, natural gas prices are trading lower in 2018, as compared to the 2017 average. This can be attributed to higher production, which stood at 73.6 bcf (billion cubic feet) per day in 2017, and is expected to average 81.2 bcf per day in 2018. As such, we expect a low single digit segment revenue decline in 2018. We have created an interactive dashboard analysis highlighting the company’s Natural Gas business. You can adjust revenue drivers and margins for 2018 and 2019 to see how it impacts the company’s overall revenues, earnings, and price estimate. Below we discuss our expectations and forecasts for the segment.

Expect Natural Gas Price Realization To Trend Lower In 2018

Natural Gas is the part of Chevron’s upstream division where we focus on the value contributed by its natural gas production operations to the overall portfolio. Upstream activities in the oil and gas industry include oil and natural gas exploration, field development, and production. The segment revenues declined from $13.0 billion in 2013 to $8.3 billion in 2016. This can be attributed to a decline in global energy prices, which impacted the company’s average price realization. However, the revenues recovered to $11.4 billion in 2017, primarily led by better price realization. The average natural gas price realization for Chevron grew 18% to $4.07 in 2017. We expect this trend to continue in the long run, and drive the growth for both the gas volume and pricing. However, in 2018 we expect the revenue to decline slightly led by lower price realization. EIA forecasts Henry Hub natural gas price to average $2.99 and $3.09 in 2018 and 2019, respectively, thereby showing a slight decline from the 2017 average of around $3.10. The current price is trading around $2.80. It should be noted that Henry Hub prices are also considered as benchmarks for parts of the global LNG market. Higher natural gas production has led to the U.S. being a net exporter of natural gas on an annual basis for the first time since 1957.

Currently, natural gas supplies 22% of the worldwide energy, and makes up nearly a quarter of electricity generation, according to the EIA. In the long run, an increasing use in power generation, transportation, and industrialization will likely boost prices from current levels. Natural gas continues to be the fuel of choice for the electric power and industrial sectors in many of the world’s regions, in part because of its lower carbon intensity compared with coal and oil, which makes it an attractive fuel source in countries where governments are implementing policies to reduce greenhouse gas emissions. You can also see other upstream metrics, such as, Average Natural Gas Price RealizationNatural Gas ProductionAverage Liquids Price Realization, and Liquids Production here.

Note that the revenue figures on the interactive dashboard are gross revenues, and include intersegment revenues to better understand the segment performance.


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