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



Total SA Boosts Its Presence in This Rapidly Growing LNG Market

Led by rapidly growing demand from Asian markets, global demand for liquefied natural gas is expected to double by 2025. Aiming to capitalize on this expected growth, French oil major Total SA (NYSE: TOT  ) recently made a big move that will allow it to capture a larger share of the fast-growing Chinese natural gas market. Let's take a closer look.

An LNG import terminal in Kochi, India. Photo Credit: Taken by Augustus

Total inks gas supply deal with CNOOC
On Wednesday, Total announced that it has signed an LNG cooperation agreement with China National Offshore Oil Corporation, or CNOOC, that will further strengthen the two companies' existing partnership.

Since 2010, Total has been supplying CNOOC with as much as 1 million tons of LNG per year as part of a 15-year contract. Under the new agreement, the two parties have agreed to a price review of this existing supply, established a framework for additional supply of 1 million tons per year, as well as further cooperation throughout the LNG value chain, according to a press release from Total.

Total has already established a strong presence in the Chinese natural gas market. Having delivered a total of 5 million tons of LNG between 2010 and 2014, it currently supplies more than 8% of the Chinese market. By strengthening its existing relationship with CNOOC, the third-largest LNG importer in the world, the company will have an even larger presence in China, where demand is expected to grow at an annual rate of 20% over the next few years.

The rush for Asian LNG
In addition to its strong relationship with CNOOC, Total also recently edged out ExxonMobil (NYSE: XOM  ) and Royal Dutch Shell (NYSE: RDS-A  ) in a three-way bidding war to acquire a majority stake in two natural gas fields in Papua New Guinea. Total paid $613 million up front for a stake in the nation's Elk and Antelope gas fields, which it will develop alongside joint venture partner InterOil Corp. (NYSE: IOC  ) . The company plans to export gas produced from the two fields to nearby Asian markets.

Total's recent moves are reflective of the current frenzy among the Western oil majors to capitalize on growing LNG demand from major Asian markets such as China, Japan, India, South Korea, and Taiwan. Companies including Total, Shell, Exxon, BP, and ConocoPhillips (NYSE: COP  ) are all pursuing major LNG projects that will primarily serve Asian markets.

Exxon, BP, TransCanada, and ConocoPhillips have teamed up to develop a massive LNG export project in Alaska that will include an 800-mile pipeline connected to oil fields in Alaska's North Slope and a liquefaction facility in the Kenai Peninsula. The project's liquefaction facility could potentially ship as much as 18 million metric tons of LNG per year, mainly to Asia.

Chevron is also developing two massive LNG projects off the West Coast of Australia -- the Gorgon and Wheatstone LNG projects -- to serve Asian markets. The two projects will have a combined production capacity of nearly 25 million tons per year, the majority of which is already under long-term contract with primarily Asian buyers. Chevron says Gorgon and Wheatstone are about 80% and 30% complete, respectively, and are slated to go into service by 2016.

Total positioned for stronger growth
Given the highly positive outlook for LNG demand growth in Asia, Total's various LNG projects and cooperation with China should serve the company well over the long term. Though LNG projects require massive amounts of upfront capital expenditures, they generate strong and stable cash flows for decades and require little additional spending after starting up.

In addition to its growing LNG presence, Total's declining spending and rising cash flows are another reason to be optimistic. The company's capital spending peaked last year and is expected to be about $3 billion-$4 billion lower over the next few years. Meanwhile, operating cash flow is set to rise sharply thanks to major new project start-ups such as CLOV in Angola, Ekofisk South in the Norwegian North Sea, Ofon 2 in Nigeria, and others, which bodes well for additional dividend increases.

OPEC is absolutely terrified of this game-changer
As companies like Total pursue oil and gas projects all over the world, they should continue to drive profit growth for one particular energy company. 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: 2895931, ~/Articles/ArticleHandler.aspx, 9/3/2015 3:15:45 PM

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...

Arjun Sreekumar

Arjun is a value-oriented investor focusing primarily on the oil and gas sector, with an emphasis on E&Ps and integrated majors. He also occasionally writes about the US housing market and China’s economy.

Today's Market

updated Moments ago Sponsored by:
DOW 16,402.29 50.91 0.31%
S&P 500 1,956.80 7.94 0.41%
NASD 4,750.49 0.51 0.01%

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

9/3/2015 3:00 PM
COP $48.25 Up +0.06 +0.13%
ConocoPhillips CAPS Rating: *****
IOC $33.69 Up +0.32 +0.96%
InterOil Corp (USA… CAPS Rating: *
RDS-A $50.90 Down -0.08 -0.16%
Royal Dutch Shell… CAPS Rating: ****
TOT $45.66 Up +0.10 +0.22%
Total (ADR) CAPS Rating: *****
XOM $73.89 Up +0.66 +0.90%
ExxonMobil Corp CAPS Rating: ****