ExxonMobil Corp. is building a strong global position to meet growing liquefied natural gas (LNG) demand, but some of the planned export projects face more scrutiny in light of commodity prices, management said.
The supermajor’s executive team, led by CEO Rex Tillerson, laid out a three-year strategy on Wednesday at the annual analyst conference (see Daily GPI, March 4). Oil prices aren’t expected to strengthen anytime soon, which could lead to delayed final investment decisions (FID).
“We’ve a number of opportunities from which to choose,” Tillerson said. “Whether we do one or we do them all, clearly there will be a sequencing to those…We’re only going to take on what we can effectively execute as well. And we’re only going to take on what we know the market is ready for as well.”
The LNG team is “going through a pretty robust examination of that portfolio today. And thinking about what’s the correct sequence of those opportunities, most of which would appear in that post-’17 [or] certainly late ’17 timeframe if we get started, if we make a choice now. I wouldn’t say there’s any particular area that leaps out as being disadvantaged in this environment.”
Last summer Golden Pass Products LLC, a joint venture of ExxonMobil (30%) and Qatar Petroleum International (70%), asked the Federal Energy Regulatory Commission for authority to construct and operate an export facility in Sabine Pass, TX (see Daily GPI, July 7, 2014). A front-end engineering design (FEED) contract was awarded in July to Chiyoda Corp. During the FEED stage, the technical, design, and cost components of the facilities would be reviewed. Golden Pass LNG, initially designed as an import facility, received a federal OK more than two years ago for free-trade exports (see Daily GPI, Oct. 9, 2012). The FID for Golden Pass was expected this year.
ExxonMobil executives hedged when asked specifically about plans for Golden Pass this year. Senior Vice President Andy Swiger said the LNG business today offered “a fascinating set of questions, and we’re at a time of a lot of disconnects in terms of expectations out there.
“Fundamentally, LNG still is a business underpinned by enormous front-end capital investments that requires a lot of confidence of buyers and sellers and what the pricing structure is going to be. That’s taken a bit of spin in the last few years with lots of talks about different kinds of pricing structures, different kinds of index type pricing, hybrid pricing and so forth.
“As people have seen what’s happened to prices in the near term, they are now even revisiting their expectations on that. By and large, as we go forward in time, most LNG projects are still going to require people to think long and hard before they make these big capital investments about what their price expectations are going to be. There are going to be few people from either sides of the equation, buyers or sellers, that are going to be quite happy to go to something that is really for the industry, unexplored territory.”
For ExxonMobil, “it will take while to feel our way into that,” Swiger said. “Things like Golden Pass…are a little bit different than our past ones, where it’s anchored very tightly to a resource. But then again, the North American resource base is unique in terms of this huge liquid pool of resource out there. That is causing some difference in the thinking, but fundamentally it’s still a huge project to fund. And everybody has to have confidence on what the pricing structure is going to be there.”
It may take some time “for people to sort through some of these big decisions that the industry is faced with on greenfield projects and particularly the brownfields like Golden Pass are a little bit different, ” Swiger said. “There may be some disruption and some discombobulation in supplies say five to 10 years out as a result of that. That’s just a normal thing in the business.”
One plus for moving forward with Golden Pass are possibly lower costs on the contracting side, Swiger said. “The market pressures…pertain to the LNG business as well. Some aspects that are really unique in terms of the fabrications of certain pieces..It is a big mega construction project subject to the same forces that other mega construction projects are as well.”
Last year ExxonMobil ramped up an export project in Papua New Guinea (see Daily GPI, Feb. 2). The Gorgon LNG export facility in Australia, a joint venture, is about 90% complete. Also in the queue is an export project in Tanzania. Longer term, North American export projects include an Alaskan joint venture with other North Slope producers and one in British Columbia (see Daily GPI, Feb. 11; June 21, 2013).
ExxonMobil’s LNG portfolio “is pretty robust, said Tillerson. “The biggest challenge we are having is deciding which one, because there are some pretty attractive holdings there, and with our insights into the market itself.” The company would be “picking the best, not just picking what might be the easiest or picking what might today appear to be the most ready. If there is something else that we believe would clearly generate a higher return to the shareholder and create more value, but needs a little more work, well, let’s put the effort on that because we can hold a lot of these opportunities.
“We’re able to hold these opportunities for a long time and preserve the opportunity and decide how we want to sequence these…The LNG portfolio is a great example…The real question is, how do we want to sequence those? What’s the proper sequence to get the maximum value?”
SVP Mark Albers told analysts expanding the petrochemicals business in North America continues to be remains a priority. Last year subsidiary ExxonMobil Chemical Co. began building an ethane cracker near Houston at the Baytown complex and associated product facilities at Mont Belvieu. There are “a number of projects we are looking at in North America, just logistically…We’ll see how things develop and take our time to see where the market shakes out and whether there are any opportunities in the North American side…”
Across the board, the company is “taking advantage of this environment to go back to renegotiate all the contracts and get the cost down, get further along on the detail design, so that when we do go out to the market, we’ve got a really good definition of what it is we want to build…”
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