Why this is a big deal
The Wheatstone project by Chevron is on the verge of becoming one of the largest resource projects in Australia. Chevron is the main stakeholder in the Wheatstone project with a stake of 73%. The other stakeholders in the project are big energy companies such as Apache
Wheatstone is not the only LNG project in Australia. Australia Pacific LNG project, a joint venture by ConocoPhillips (42.5%), Origin Energy (42.5%), and Sinopec
Rising LNG prices are making the market lucrative and firms such as ExxonMobil
It's a big opportunity
The first and foremost reason is the availability of resources. Government studies have reported the presence of 140 trillion cubic feet of stranded gas in Australian water that has yet to be developed. Australia is the world's fastest growing LNG producer, and with more than $216 billion worth of projects under construction, or in the pipeline, it is poised to emerge as the biggest exporter of LNG by the end of the decade, beating Qatar. The U.S. Geological Survey has reported that about 84 trillion cubic feet of technically recoverable gas lie in the Marcellus shale in the United States. Natural gas is also available in huge quantities in countries such as Qatar, Malaysia, and Indonesia.
Secondly, natural gas is the cleanest of all fuels when it is burned. As more and more countries across the globe are becoming aware of the hazards of pollution and taking steps to curb emissions, LNG will enjoy a huge surge in its demand in the coming years. The LNG market is showing decent growth of 9% in the first half of this year and LTM growth of 13%. LNG prices have been forecast to increase by 71% to about $20 per million British thermal units.
Asia is the biggest consumer of LNG in the whole world, with Japan having the largest share of the imports. Japan and South Korea account for 53% of the world's regasification capacity, i.e., the capacity to convert LNG into gas for industrial and commercial use. The industry is also facing huge demand from the world's fastest growing economies like India and China as their industries and cities expand. The demand for secure energy in India and China could be so high that it may even lead to a fivefold increase in demand in the next decade. The demand for LNG in India and China is expected to be around 50 million tonnes per year and 46 million tonnes per year in 2020, from a mere 9 million tonnes per year in 2010.
Thirdly, the incident at the Fukushima Daiichi nuclear plant in Japan has also opened up new avenues for the LNG industry. The energy shortage faced by Japan in the wake of the Fukushima Daiichi nuclear plant crisis is going to increase the country's demand of LNG. Japan's import is projected to rise by almost 15 million tons in 2011 and 20 million tons in 2012. The earthquake and tsunami in Japan reminded the world of the hazards and risk of nuclear power and has forced countries across the globe to start finding new sources of energy, and given all the constraints, LNG looks to be a good alternative. This is very much evident from the fact that LNG costs have increased by about 33% after the Fukushima Daiichi incident.
The Foolish takeaway
As the world continues to grow, the demand for energy will also rise. Growing demand for cleaner forms of energy, given supply constraints, should make the market very lucrative. This is one segment that has the potential for some serious growth.