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TheStreet Open House

How Asia's LNG Sector Will Drive Exxon Mobil's Growth

Stocks in this article: XOMTOTCEOCVXSNPIOC

NEW YORK (TheStreet) - Exxon Mobil (XOM), America's biggest energy company, is expanding its footprint in Asia's liquefied natural gas, or LNG, market.

The oil behemoth's LNG project in Papua New Guinea, or PNG, is nearing completion in June, four months before originally planned. Exxon Mobil has already contracted more than 95% of the supplies to four Asian buyers. Moreover, the Asian market-focused Gorgon LNG project in Australia, in which Exxon Mobil holds a minority stake, could also come online by 2015.

Through these projects, Exxon Mobil will increase its supplies to Asia, where LNG commands a higher price  compared to other regions, of more than $14 per million British thermal units (MMBtu). An increase in supplies to Asian markets can, therefore, drive the company's earnings growth.

Moreover, Exxon Mobil's initial deliveries from PNG will likely be spot cargoes. Although LNG spot prices have recently shown weakness, they are still above $15 per MMBtu. Moreover, the spot prices could increase in the next couple of months ahead of the uptake in demand in the summer season.

Exxon Mobil's shares, currently around $100, are up 12.7% over the last 12 months.

Exxon Mobil has a significant global position in LNG projects around the world, particularly in Qatar and Indonesia where the company has 65 million tons of annual liquefaction capacity. Its portfolio includes four of the world's largest LNG trains, each with capacity of 7.8 million tons per year.

The global LNG demand will be driven by the energy-hungry Asian economies where, analysts believe, the rising levels of pollution and income has created a healthy business environment. China and India will emerge as the new demand centers, as opposed to Japan, South Korea and Taiwan that have traditionally been the largest importers of LNG.

Last year, China unveiled a new natural gas policy that prioritized the use of LNG in the transport sector due to pollution concerns. LNG is the cleaner alternative to diesel, which is normally used to fuel the vehicles in the country. Moreover, when natural gas is used for electricity generation, it emits 60% less carbon than coal.

In 2013, China's LNG imports climbed 23% to its highest ever level of 18 million tons. By 2020, the country's demand for natural gas could triple. Since half of its gas imports consist of LNG, therefore, China's demand for LNG will remain robust.

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