ExxonMobil (XOM 0.35%) and its joint venture partner, QatarEnergy, recently completed the first LNG train at their Golden Pass project in Texas. While it has faced delays over the year, the companies couldn't have completed the project at a more opportune time. The war with Iran has caused a significant disruption to the global LNG market.
Here's a look at the current state of the global LNG market and whether now's a good time to invest in ExxonMobil.
Image source: Getty Images.
The global LNG supply crunch
ExxonMobil and QatarEnergy began construction of Golden Pass LNG in 2019. While delays pushed the project's completion date back, the partners have finally finished the first LNG train. It will have a capacity of 6 million metric tons per annum (MTPA). Once fully operational next year, Golden Pass will produce 18 MTPA. Exxon has a 30% interest in the facility (QatarEnergy owns the other 70%).
The $10 billion Golden Pass project is coming online at the perfect time. Iran has effectively blocked shipping traffic exiting the Persian Gulf through the Strait of Hormuz. Before the war, 20% of global oil and LNG supplies passed through the Strait each day. Most of that LNG came from Qatar, one of the world's largest producers.
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Key Data Points
In addition to blocking the Strait, Iran has attacked energy infrastructure in the Gulf, including Qatar's LNG facilities. Those attacks damaged two of Qatar's 14 LNG trains, both of which it owns with ExxonMobil (the U.S. energy giant has a 34% stake in LNG train S4 and a 30% interest in train S6). QatarEnergy estimates that it will take three to five years to repair the damage to these LNG trains, knocking out 17% of its capacity (about 12.8 MTPA). The start-up of Golden Pass will help fill some of this hole.
Exxon's 2030 plan
Golden Pass LNG is one of many projects Exxon has underway to expand its global energy operations. It's investing heavily in high-return projects that deliver low-cost, high-margin supplies. This strategy positions Exxon to produce robust earnings and cash flow growth over the next five years.
The global energy giant raised the expectations of its 2030 plan late last year. It now anticipates achieving $25 billion in annual earnings growth and $35 billion in additional cash flow by 2030, assuming the same commodity prices and margins as in 2024. This forecast implies Exxon can deliver double-digit compound annual growth over the next five years. The company's plan positions it to produce $145 billion of surplus cash over the next five years at $65 oil. While damage to its facilities in Qatar will have some impact, much higher energy prices should more than offset this effect.
Growing value even if energy prices fall
ExxonMobil's 2030 plan positions it to become an even more profitable energy company in five years without any increase in energy prices. Golden Pass is just one of many projects it intends to deliver to achieve that goal. With prices now much higher, Exxon could produce an even bigger profit gusher. While Exxon shares are already up 40% this year, they could have further to run if the war continues and energy prices remain higher for longer. That makes it still look like a good buy right now.
