Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Statoil Shows Asian Growth Potential

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

On March 3, Norwegian oil and gas giant Statoil (NYSE: STO  ) announced the results of a drill stem test at the company's massive Zafarani gas field off of the coast of Tanzania. The reason for this test was to analyze the future production potential of Zafarani. It was revealed to be quite good, and the test showed that the well would likely produce gas at a higher rate than what was achieved during the test. This bodes well for Statoil, which is considering developing a full-scale LNG production facility at the site.

About Zafarani
The Zafarani reservoir is a large deposit of natural gas located off the shore of the eastern African nation of Tanzania. This reservoir is located in the prolific Block-2 area, which also contains several other natural gas deposits.

Source: Statoil

Some might recognize this area as being just north of Mozambique, a country in which Italy's Eni (NYSE: E  ) discovered the massive Mamba gas field, estimated to contain 60 trillion cubic feet of natural gas in place. While Statoil's gas fields in Block-2 are nowhere near that size, this is still a significant amount of gas and could create a very strong opportunity for Statoil.

Worth the cost?
Unfortunately, converting natural gas into LNG is a process that requires very specialized equipment. This process can only be performed at purpose-built plants that are very expensive to construct. For example, the Yamal LNG plant currently being planned for construction in northern Russia has a budgeted cost of $15 billion-$20 billion. The Yamal plant is one of the biggest in the world and so is more expensive to construct than a smaller plant but, regardless, an LNG plant still costs several billion dollars to construct. Therefore, the area in which the LNG plant is to be constructed needs to contain a substantial volume of natural gas to justify the costs of constructing the plant.

Fortunately, Tanzania's Block-2 contains enough gas to justify the investment into constructing such a plant. Statoil sees this and is making such an investment. On February 14, Bloomberg Businessweek reported that Statoil and BG Group will be constructing an LNG plant in Lindi, Tanzania, to export the natural gas extracted from the offshore fields in the country. The LNG that comes out of these plants is bound for Asia, a region in which natural gas is in great demand, and this demand is likely to grow going forward.

Growth opportunity in Asian natural gas
The construction of this plant, combined with the ideal positioning of Tanzania relative to Asia offers Statoil the potential to become a significant supplier of natural gas to the thirsty Asian markets. The Energy Information Agency expects that natural gas consumption will increase by an average of 1.3% per year from 2010 to 2040 in the Asian and Australian OECD-member nations. However, this consumption growth is greatly dwarfed by the expected growth in natural gas consumption by those Asian countries that are not members of the OECD. In these countries, the EIA expects natural gas consumption to increase by an average of 3.3% per year over the 2010 to 2040 period. This would result in a near tripling of gas consumption over the period. 

Source: Energy Information Agency

Statoil is well-positioned to supply the gas needed to meet this demand due to these large deposits in Tanzania as well as the company's new LNG plant which it plans to construct.

Not a short-term play
It is important to understand that the development of these resources and the beginning of gas exports to Asia is not an opportunity that Statoil will be able to exploit within the next year or two. The development of an offshore field is a process that takes eight to ten years. Fortunately, Statoil is already a few years into the process. Additionally, the construction of an LNG plant takes a few years. For example, the Yamal LNG plant in Russia is expected to require approximately two years from approval to being brought online and nearly four years to complete. Fortunately, Statoil can work on constructing this plant while it is also developing the fields located off of the Tanzanian coast. This could allow the company to begin supplying natural gas to Asia by the end of this decade. This is just one avenue of growth that Statoil will be pursuing as it makes its way toward 2020.

The best play on offshore drilling?
Imagine a company that rents a very specific and valuable piece of machinery for $41,000... per hour (that's almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company's can't-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we're calling OPEC's Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock... and join Buffett in his quest for a veritable LANDSLIDE of profits!


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2865497, ~/Articles/ArticleHandler.aspx, 9/1/2015 2:15:41 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Daniel Gibbs

Daniel is an independent research analyst whose focus is on tangible, income-producing assets. He primarily covers the energy sector for

Today's Market

updated 4 hours ago Sponsored by:
DOW 16,528.03 -114.98 -0.69%
S&P 500 1,972.18 -16.69 -0.84%
NASD 4,776.51 -51.82 -1.07%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/31/2015 4:03 PM
STO $15.49 Up +0.14 +0.91%
Statoil (ADR) CAPS Rating: ****
E $33.29 Up +1.05 +3.26%
Eni S.p.A. (ADR) CAPS Rating: ***