I am pretty sure of one thing about the oil and natural gas industry: To play a major role in LNG, the South Pacific is the place to be. One company with operations in the region is InterOil
InterOil's operations are concentrated in Papua New Guinea. The company will soon make a final decision on its $6 billion Gulf LNG project in the area with an initial capacity of 5 million tons per annum (mtpa). The project, to be built in phases, is a joint venture with Pacific LNG and will have a total capacity of 10 mtpa.
A company generally looks to secure sale contracts of around 85% of the total capacity to invest in a project. InterOil has secured a preliminary sales agreement with Gunvor to supply 1 mtpa of LNG for a period of 15 years, commencing in 2015. This comes after a similar pact with Noble Energy
Why South Pacific?
The presence of LNG reserves is the reason that so many oil companies, including biggies like ConocoPhillips
Papua New Guinea is estimated to hold 226.5 billion cubic meters of natural gas reserves that can be commercialized through LNG terminals. The acreage offers a good opportunity for InterOil to cater to the huge demand for LNG in the Asian markets. InterOil will also be able to charge the higher price that's prevalent in the Asian market compared to that of the American and European markets.
Foolish bottom line
The South Pacific is offering new avenues of growth to natural gas firms, and InterOil is trying to make the most of the situation by building new projects. Once it secures sales agreements for the remaining capacity (we have no reason to believe it cannot, keeping in mind the demand from Asia), InterOil has a great opportunity to boost revenues.
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Fool contributor Amitabha Chakraborty does not own shares of any of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of 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.