Does Anadarko Stand a Chance in the LNG Export Business?

Does Anadarko Stand a Chance in the LNG Export Business?

Worldwide demand for liquefied natural gas, or LNG, grows with no end in sight. In Asia, supply problems exist since many countries producing natural gas for export also face rising domestic demand. Similarly, growing demand in Latin America keeps North American natural gas out of Asia. No surprise that Asia pays a premium for LNG.

Anadarko Petroleum , Chevron , and ExxonMobil all have LNG export operations focused on Asia. Can Anadarko compete against its Big Oil rivals?

Out of East Africa
Anadarko made a huge natural gas discovery off the coast of Mozambique in 2010. This isn't hyperbole. Anadarko estimates its assets off Mozambique hold more than 65 trillion cubic feet of natural gas. Anadarko, with others, is building an export terminal so big it could make the country one of the biggest LNG exporters in the world.

Even better, geographic location allows easy exports to Europe, India, and Asia. The country's leadership seems publicly determined to bring prosperity to its impoverished nation through this natural gas. Korea Gasis building a pipeline to bring natural gas onshore and feed Mozambique's power companies. This, in turn, should bring cheap electricity to a country where 80% of its citizens lack access to power.

Two black clouds threaten Anadarko's Mozambique horizon. The first is a push by the Mozambique national gas company to gain a greater stake in Anadarko's gas fields. The country wants more profits from its natural resources and this means less profits for Anadarko.

The other black cloud is an uptick in political violence. A 16 year-old civil war could renew as opposition members want a greater piece of Mozambique's natural resources.

Three export terminals around the globe
In a sense, Chevron is already beating Anadarko at the LNG export game. The company owns a major stake in an LNG terminal in Angola that shipped its first LNG this past summer. By all accounts, it was a painful journey to get to that point. The company experienced 18 months of delays for a variety of reasons before the first LNG carrier cast off. However, Chevron undoubtedly learned from the experience and can minimize delays in its two other LNG terminals.

These other terminals are the Wheatstone in Australia and the Kitimat in Western Canada. Both terminals will be fed by Chevron-owned natural gas assets in their respective countries. The Kitimat, by some estimates, will be exporting natural gas as early as 2015, with larger facilities coming online in 2018. The Wheatstone is slated to begin exports in 2018.

All three terminals give Chevron exposure to the Asian natural gas market. The Angola terminal already ships LNG to Japan and China. The Wheatstone and Kitimat hope to exploit their respective geographies to bring LNG to Asia with favorable economics regarding both natural gas price differentials and shipping costs. These terminals add to Chevron's portfolio of natural gas assets in China, Vietnam, and Thailand.

Helping the largest exporter do more with its gas
The State of Qatar exports more LNG than any other country, and ExxonMobil helped develop 12 of the 14 export terminals used for this business. Sitting on 900 trillion cubic feet of natural gas reserves means Qatari gas exports won't stop anytime soon, and ExxonMobil should continue benefiting from it. Beyond exports, Qatar and ExxonMobil plan on expanding other uses for natural gas, including helium production and petrochemicals that use natural gas as a feedstock.

ExxonMobil's natural gas interests extend to Australia. The big news here is that the Kipper Tuna Turrum on Australia's east coast began delivering natural gas in October. This gas is meant for domestic use. For export purposes, ExxonMobil owns a 25% stake in the Gorgon natural gas project slated in Northwestern Australia. This project is 47% owned by Chevron, by the way.

Gorgon is the largest single resource project in Australia and ExxonMobil subsidiaries have already signed contracts with Chinese and Indian concerns for LNG purchases. ExxonMobil also owns equity stakes in Australia's Scarborough gas field and floating LNG terminal, scheduled for a 2020 start date.

Another potential source of ExxonMobil's gas exports is Tanzania, where significant finds have been made. Specifically, a joint venture with Statoil has found a net total of 17 trillion cubic feet of natural gas reserves so far with more drilling slated for the future.

Much like Mozambique, Tanzania's geography makes the Asian gas market an easy outlet for its natural gas. No mention yet as to when this gas might actually be produced and exported.

Final Foolish thoughts
Anadarko's Mozambique terminal should start shipping up to 50 million tons of LNG in 2018. This compares to the 61 million tons ExxonMobil currently ships from Qatar each year. While Anadarko won't beat either Chevron or ExxonMobil for export capacity, it should operate profitably in this business.

Demand for natural gas worldwide, by some estimates, will exceed LNG export capacity. So even though it's a small player, Anadarko should be making a buck off of its Mozambique gas exports long after they start.

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