Chevron stands to win in liquefied natural gas market: energy analyst

Chevron stands to win in liquefied natural gas market: energy analyst

Natural gas prices have been depressed along with crude oil prices. Liquefied natural gas (LNG) was a growing business for many years but since 2011, the market for LNG has been fairly flat.

The natural gas market is “great in terms of volume, in terms of price, not so great,” said Paul Sankey, energy analyst at Wolfe Research. “But if you turn them into barrels of oil equivalent, prices have been trading at this $18 a barrel type level against oil, considered to be completely beaten up at $50 a barrel,” he added. “So you really have a much cheaper resource here in natural gas,” said Sankey.

The analyst noted the nature of the natural gas industry requires extremely high upfront capital for giant projects that can take many years to finish. “Of course timing these things is almost invariably got wrong by these oil companies, so they just missed four years of $100 oil where the market didn’t grow, and at $50 suddenly we have this enormous surge to two major sources, Australia and the U.S.,” said Sankey.

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Sankey said the United States is on track to become the third biggest LNG exporter by 2020. “It’s fascinating that the U.S. is going to go from zero LNG exports to actually 50 million tons,” he said.

Despite the huge role the U.S. will play, Sankey thinks weak demand will not be favorable from a price standpoint. “We’re not sure that this will be great for pricing at all, in fact we think it won’t,” he affirmed.

For stock investors, “we think Exxon (XOM) loses a lot of volume. Chevron (CVX) gains a lot of volume.” On that assessment, Wolfe Research recently upgraded Chevron and downgraded ExxonMobil.

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