Integrated energy giants Chevron (NYSE:CVX), ExxonMobil (NYSE:XOM), and Royal Dutch Shell (NYSE:RDS-B) are plowing billions into natural-gas exploration and production in Australia. Through a huge development known as the Gorgon Project in Australia, the three energy majors are paving the way for liquefied natural gas to be delivered both in Australia and around the globe as early as next year.
Liquefied natural gas, or LNG, shows great promise, as it is easier to store and transport in liquid form than traditional natural gas. The three energy titans are proving as much with their huge investment. The potential for natural-gas production from the Gorgon Project is immense, and is ready to pay off in the near future. Read on to find out why the future of Big Oil is so geared toward LNG, and more specifically, the Gorgon Project.
"An emerging Australian icon"
That's how Chevron classifies its mammoth undertaking off the northwest coast of Australia. The Gorgon Project will be one of the world's largest natural-gas projects and the largest single resource development in Australia's history, according to Chevron. This is entirely believable, given the massive size and scale of the development. The Gorgon Project is on track to utilize $20 billion in spending on Australian goods and services, and is responsible for 7,000 jobs in the local area. The goal is for domestic gas to be delivered to the market in 2015.
Chevron has the largest interest in the Gorgon Project by far, as it operates 47.3% of the development. Fellow integrated majors ExxonMobil and Royal Dutch Shell each own approximately 25% of the Gorgon Project.
The Gorgon Project holds considerable potential across both the upstream and downstream corners of the exploration and production spectrum. Upstream wells and facilities include eight high-rate development wells, as well as a sub-sea gathering and pipeline system that will deliver the gas from the Gorgon fields. On the downstream side, the Gorgon Project includes a 15.6 million tonnes-per-annum liquefied natural-gas facility, and an LNG storage plant.
Why this matters
Liquefied natural gas stands to play a huge role in satisfying the world's seemingly insatiable hunger for energy, particularly in the emerging markets. The U.S. Energy Information Administration, or EIA, states that growth in natural-gas consumption across the globe is indeed considerable, and Australia is well-positioned geographically to meet the demand. The EIA reports that, in the three decades spanning 1980 and 2010, global consumption of natural gas has more than doubled. Consumption in North America actually saw the slowest regional growth, while the Middle East and Asia accounted for the two-highest regional growth rates.
The Gorgon Project in Australia will ably serve Asian demand, which rose more than eight-fold over the three-decade period. By 2010, Asian natural-gas demand approached Europe's level of demand. It stands to reason that this trend should only accelerate in the future, as faster-growing economies in many emerging Asian nations means millions of new entrants into the middle class. As a result, it's perfectly clear why Chevron, ExxonMobil, and Royal Dutch Shell would commit such a huge amount of investment to exploring and producing the massive amount of Australian natural-gas resources.
The Gorgon Project will provide years of rewards
In early 2013, the market for natural gas was much cloudier than it is now, due to an uncertain pricing environment. Now that natural-gas producers have rising natural-gas prices serving as a tailwind heading into 2014, in addition to soaring global demand, it seems likelier than ever that the Gorgon Project in Australia will provide years of hefty benefits for the companies involved.
Chevron stands to benefit the most since it's the biggest owner of the Gorgon development, but the massive potential for Australian natural-gas production should make winners out of co-owners ExxonMobil and Royal Dutch Shell as well.
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Bob Ciura has no position in any stocks mentioned. The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.