U.S. supermajor Chevron Corporation will only take equity stakes in LNG liquefaction terminals when necessary to get its gas to market, CEO Mike Wirth said on the firm’s second quarter results call.
Wirth noted that the midstream part of the value chain had the potential to be very capital intensive and deliver low returns.
“We’re really looking to drive high returns, not necessarily to own assets for the sake of control, unless it creates a differentiated value proposition,” he said.
In the U.S., Chevron signed two deals last year with LNG developers Cheniere Energy, Inc. and Venture Global LNG for a combined four million metric tonnes per annum (mtpa) that will provide an outlet for natural gas flowing from its Permian Basin shale holdings in West Texas and New Mexico, without it having to take a stake in terminals.
Because it has its own shipping portfolio Chevron can lift the cargoes on a FOB basis and sell them into international gas markets.
Outside the U.S., Chevron has some stakes in LNG projects — notably in Angola and Australia. It is also evaluating a floating LNG project offshore Israel that would process gas from the Leviathan field.
“In places where you’ve got remote gas where you need to be in the entire value chain and you can create an economic model that supports the investments, we’ve done that,” said Wirth. “In other locations where you’ve got other people that will put capital into the midstream assets … that’s certainly a model that helps us support our aspiration to drive higher returns.”
Chevron has experienced several challenges with its Gorgon LNG liquefaction facility offshore Australia. It was licensed to build the export plant on the condition it would inject at least 80 per cent of the CO2 it emitted. But it injected just a third of the CO2 it produced in the 2021-2022 financial year due to issues with its water management system. Chevron was required to purchase a significant volume of carbon offsets to make up the shortfall.
Chevron’s Angola LNG has also suffered technical issues and was shut down for more than three years from 2015 to 2019.
New types of contracts have allowed some gas producers to get exposure to international gas prices without having to take equity stakes in liquefaction projects.
EQT said in its second quarter results that it would not look to take stakes in U.S. liquefaction but would gain exposure to international gas markets via a tolling agreement with Energy Transfer’s Lake Charles project. Chesapeake Energy Corporation similarly has agreed to supply trading house Gunvor with two million mtpa LNG at JKM-linked prices without yet specifying which terminal will be used.
But other producers continue taking equity stakes in the U.S.
ConocoPhillips has a 30 per cent stake in the Port Arthur LNG project it is developing with Sempra Infrastructure, and Exxon Mobil Corporation has a 30 per cent stake in Golden Pass export terminal.
Devon Energy Corp. also has a preliminary agreement in place to help finance Delfin Midstream’s first floating LNG vessel.
Outside the U.S. firms, TotalEnergies SE has a stake in Cameron LNG and Rio Grande LNG.
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