The Commodity Investor Q&A
With Matt Badiali
December 30, 2009
Q: You recently wrote about ExxonMobil jumping into the U.S. natural gas market. I always thought of them as an oil company. Is this completely out of character? – J.B.
A: Energy giant ExxonMobil's recent acquisition of U.S. natural gas giant XTO Energy caused a fuss. But it was simply the first manifestation of Exxon's global strategy here at home.
Exxon focuses on giant energy projects at great prices. For the past few years, those projects were mostly outside the U.S.
In 2007, Exxon completed a giant liquefied natural gas (LNG) project in Qatar. In 2008, the company targeted the giant Kearl oilsands project in Canada. This year, it focused on the giant Gorgon liquid natural gas (LNG) project offshore Australia. These are all enormous endeavors that take years to develop. But eventually, they pay off.
In 2009, the company sold about 11 billion cubic feet of natural gas per day to a huge range of customers. That's about 4% of the total world demand – an enormous amount for a non-government controlled oil company. Its customers are mainly power generators, including the fourth-largest power company in the world, Tokyo Electric Power Company (TEPCO).
Most of Exxon's recent natural gas projects are in Australia and Asia. That part of the world spent well over $210 billion on natural gas infrastructure and contracts in 2009. That kind of money attracts big players like Exxon.
And the company is constantly on the lookout for new projects.
Exxon's latest one, announced in early December 2009, is in Southeast Asia. It's investing $15 billion to produce and ship liquefied natural gas (LNG) to Asia's biggest customers. The company already signed 20-year supply agreements with TEPCO, Japanese Osaka gas, and the giant Chinese oil company Sinopec.
(Asian demand for natural gas is growing so quickly, I wanted to see the opportunities before they were gone. I recently traveled the area, and the potential is huge for small-cap energy investments. To read more about my trip, click here.)
Tom Walters, who heads up Exxon's Gas & Power Marketing Company, told attendees at the International Petroleum Technology Conference in Doha, Qatar, that the world's energy demands would grow 35% from 2005 to 2030. That puts global energy demand around 300 million barrels of oil equivalent per day... and much of that must come from natural gas.
Now, the price of natural gas here in the U.S. doesn't reflect the price of natural gas in the world. We don't have any export LNG terminals. In other words, domestic demand caps U.S. natural gas prices. So Exxon bought XTO because it was probably the largest aggregation of natural gas at the lowest price around.
With Exxon's expertise at building LNG terminals in far-flung places, I'll bet there's a plan afoot to build some here in the States in the not-too-distant future. That's especially likely when companies are willing to lock in 20-year supply agreements.
Exxon is thinking two decades down the road, and it sees a robust natural gas trade. The company is in position to be the largest supplier of natural gas in the world. Energy investors should take heed. If you don't currently own shares of ExxonMobil, the world's foremost energy company, you should.
Good investing,
Matt Badiali
P.S. Drop me a line for the Commodity Q&A here. I can't answer every question and comment, but I do read them all. |
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|
Last |
Change |
52-Wk |
| S&P 500 |
1126.48 |
+0.53% |
+30.17% |
| Oil (USO) |
38.20 |
+1.22% |
-31.63% |
| Gold (GLD) |
108.36 |
+1.70% |
+29.83% |
| Silver (SLV) |
17.17 |
+2.14% |
+67.02% |
| U.S. Dollar |
77.61 |
-0.38% |
-4.15% |
| Euro |
1.44 |
+0.55% |
+2.50% |
| VIX |
19.47 |
-1.22% |
-55.96% |
| HUI |
438.37 |
+0.39% |
+58.85% |
| 10-Year Yield |
3.81% |
0.06 |
2.84 |
|
| Company |
Sym |
Industry |
3M |
MMM |
conglomerate |
Green Mtn Coffee |
GMCR |
coffee |
CB Richard Ellis |
CBG |
property mgmt |
Becton, Dickinson |
BDX |
medical devices |
L-3 Com |
LLL |
defense |
Tim Hortons |
THI |
restaurants |
Oracle |
ORCL |
software |
Total |
TOT |
Big Oil |
Unilever |
UN |
toiletries |
Federal-Mogul |
FDML |
auto parts |
Hanover Insurance |
THG |
insurance |
Smith & Nephew |
SNN |
medical devices |
Fastenal |
FAST |
building matls |
Panera Bread |
PNRA |
restaurants |
Salesforce |
CRM |
software |
Devon Energy |
DVN |
oil & gas drilling |
Philips Electronics |
PHG |
electronics |
Bank of Montreal |
BMO |
bank |
Sanofi-Aventis |
SNY |
Big Pharma |
Watson Pharma |
WPI |
pharma |
Mastercard |
MA |
credit cards |
Teekay |
TGP |
shipping |
PG&E |
PCG |
utilities |
Arcelor Mittal |
MT |
steel |
Nike |
NKE |
athletic wear |
Tootsie Roll |
TR |
candy |
Trustmark |
TRMK |
bank |
Edwards |
EW |
medical devices |
FLIR Systems |
FLIR |
defense |
Alexander & Baldwin |
ALEX |
shipping |
Check Point |
CHKP |
software |
Yanzhou Coal |
YZC |
coal mining |
General Mills |
GIS |
packaged foods |
Loews |
L |
insurance |
Alcon |
ACL |
medical devices |
Emerson Electric |
EMR |
industrial equip |
Canadian Pacific |
CP |
railroads |
Microsoft |
MSFT |
software |
ConEd |
ED |
utilities |
Eastman Chemical |
EMN |
chemicals |
ConAgra Foods |
CAG |
packaged foods |
Progressive |
PGR |
insurance |
Medtronic |
MDT |
medical devices |
Northrop Grumman |
NOC |
defense |
Nordstrom |
JWN |
dept stores |
IBM |
IBM |
computers |
SCANA |
SCG |
utilities |
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