Exxon Mobil places big bet on China’s LNG needs

Exxon Mobil CEO Darren Woods with Chinese Premier Li Keqiang. (AFP)
Updated 18 October 2018
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Exxon Mobil places big bet on China’s LNG needs

  • Exxon is among the top ranked US companies that are pushing ahead in China despite the trade dispute
  • China in 2017 embarked on a huge program to shift millions of households and factories from coal to natural gas for power and heating

HOUSTON: The world’s largest publicly traded oil and gas company is turning to Beijing for business at a time when most of corporate America is looking elsewhere to avoid the threat of tariffs amid the Sino-US trade war.
Exxon Mobil Corp. is placing big bets on soaring demand for liquefied natural gas (LNG) in China, coupling multi-billion dollar production projects around the world with its first mainland storage and distribution outlet.
Its gas strategy has been moving on two tracks: Expanding output of the super-cooled gas in places such as Papua New Guinea and Mozambique, and creating demand for those supplies in China by opening Exxon’s first import and storage hub, according to an Exxon manager and people briefed on the company’s plans.
That combination “will guarantee us a steady outlet for lots of our LNG for decades,” said the Exxon manager who was not authorized to discuss the project and spoke on condition of anonymity. One of the company’s top policy goals this year, the manager said, is building its Chinese client roster.
“China’s natural gas demand is rising really fast, with imports soaring well over 10 percent annually at the moment because of the government gasification program and due to fast rising industrial demand, including in petrochemicals,” the Exxon manager said.
An Exxon spokesperson declined to provide an executive to discuss the company’s LNG investments in China.
Years in the making, the strategy delivers an added benefit: Helping Exxon sidestep a global trade war. Exxon’s massive LNG projects in Papua New Guinea and Mozambique will not incur the 10 percent tariff China put on US gas as part of the trade war between the Trump administration and Beijing.
Jason Feer, head of business intelligence at LNG tanker brokers Poten & Partners, which tracks LNG sales, said the deal provides “a sign that China is willing to let foreign interests invest in things that in the past were seen as strategic.”

 

Exxon is among the top ranked US companies that are pushing ahead in China despite the trade dispute, but it is not alone. US and European car makers are opening or expanding China plants to avoid hefty tariffs and transport costs. Tesla Inc. this month acquired a Shanghai site for a car and battery-manufacturing complex.
Exxon’s Asian and African LNG will offer a cost advantage over US rivals’ exports that face tariffs and greater transport costs, while China’s support for the project offers a rebuttal to Trump administration complaints about the country’s closed markets.
The decision to expand LNG production and open an import terminal in the world’s fastest growing LNG market is a step by Exxon CEO Darren Woods to pull the company out of an earnings rut that has left its shares flat over the past seven years.
Woods appeared holding discussions with Chinese Premier Li Keqiang on state-run media last month days after disclosing local approvals for the LNG terminal and a massive chemical project in Guangdong province. Since becoming CEO last year, Woods has pushed Exxon to take greater risks, including in energy trading operations.
His timing with LNG is key. Next year, China will become the world’s largest importer of natural gas, and its LNG imports are forecast to rise 70 percent by 2020, from 38.1 million tons last year, Beijing consultancy SIA Energy estimated.
Exxon has not publicly named its partner in the import terminal. State-run power company Guangdong Yuedian Group said on its website it will join the project. BP Plc is the only other foreign oil major with a stake in a Chinese LNG terminal.
Yuedian did not respond to a request for comment.
The multi-billion dollar move still faces risks from the Sino-US trade dispute. China has vowed to respond to any new tariffs by the Trump administration, which recently accused China of meddling in the US’s mid-term elections in November and trying to recruit Americans to spy for it. But it remains unclear what that response will be and if it puts agreements such as Exxon’s in China in jeopardy.
In addition to the LNG terminal, Exxon received approval for its first wholly-owned chemical plant in China, becoming the second foreign firm after Germany’s BASF to gain approval to operate such plants without a local sponsor.
The terminal and chemicals plants combined will cost about $9 billion to build, consultancy IHS Markit estimates.
China in 2017 embarked on a huge program to shift millions of households and factories from coal to natural gas for power and heating, a move to clear the smoggy skies over its cities.
That surge has injected new life into an LNG industry that suffered from plunging prices between 2014 and 2017, which forced energy companies to put off liquefaction projects.
But with prices for LNG rising this year, major producers have boosted investment. In addition to Exxon, Royal Dutch Shell this month gave the go-ahead to a $31 billion LNG Canada project that will export fuel primarily to China.
“Major independent oil companies such as Exxon aim for large-scale tier one positions, and in the LNG game that is Qatar, East Africa, and possibly some North American and Papua New Guinea projects,” said Saul Kavonic, oil and gas researcher for Credit Suisse in Sydney, Australia.
Exxon and other LNG producers also are adapting to changing buyer behavior. In the past, LNG was dominated by long-term supply contracts — especially with Japanese and South Korean buyers — that could span several decades and in which buyer and seller agree to a fixed monthly volume at a set price formula, usually priced off crude oil.
That is changing, in part because China’s importers either demand more contract flexibility or simply buy LNG at short-notice in the spot market whenever they need it.
The shift away from such rigid price-supply deals is forcing producers to trade new LNG supplies and give import terminals a larger role in encouraging spot purchases.
“LNG players are increasingly adopting an LNG portfolio model whereby supply projects are not directly linked to end customers, with more than 50 percent of contracts now coming from portfolio suppliers rather than specific projects,” said Credit Suisse’s Kavonic.

Decoder

LNG, or liquefied natural gas is natural gas that has been converted to a liquid state for ease of transport overseas where laying pipelines is not practical. It is transported in specially-designed ships.


Davos 2019: Mideast CEOs turn gloomy on global economy, PwC study finds

Political and business leaders are gathering in the mountain resort of Davos in Switzerland this week. (AP)
Updated 14 min 47 sec ago
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Davos 2019: Mideast CEOs turn gloomy on global economy, PwC study finds

  • The loss of confidence from regional CEOs was the second biggest fall in the world, beaten only by North American bosses, whose optimism fell from 63 percent to 37 percent

DAVOS: Chief executives in the Middle East are much less confident on prospects for the global economy than they were in 2018, according to a report from accounting and consulting group PwC.

The firm’s annual survey of top bosses’ attitudes, traditionally launched on the eve of the World Economic Forum Annual Meeting in Davos, showed a big drop in the number of CEOs from the region who believe global economic growth will improve in the next 12 months.

Only 28 percent of Middle East business leaders now see an improvement in economic prospects, compared with 52 percent this time last year. Bob Moritz, global chairman of PwC, said: “The prevailing sentiment this year is one of caution in the face of increasing uncertainty.”

The loss of confidence from regional CEOs was the second biggest fall in the world, beaten only by North American bosses, whose optimism fell from 63 percent to 37 percent.

PwC said that the Middle East decline was due to “increased regional economic uncertainty,” while the North American fall was “likely due to the fading of fiscal stimulus and emerging trade tensions.”

The results of the PwC poll - conducted among 1,300 business leaders around the world - reflected an overall decline in business confidence in each region surveyed. Last year, only 5 percent of CEOs said that global economic growth would decline. For 2019, this has jumped to nearly 30 percent.

Globally, confidence in CEOs’ own companies to grow revenue this year has also fallen sharply. Moritz said: “With the rise in trade tension and protectionism it stands to reason that confidence is waning.”

The US retains its lead as the top market for growth among international investors, but many CEOs are turning to other markets, or investing at home. The ongoing trade conflict between the US and China has resulted in a sharp decline in the number of Chinese bosses chosing the US as a market for growth, down from 59 percent last year to only 17 percent for 2019.

Globally, CEOs are still more worried about the threat of over-regulation of their businesses - named as the top concern again in 2019 - but uncertainty about policy has become a major issue too.

In the Middle East, the main concern is geopolitical uncertainty, followed by the threat of cyberattack, policy uncertainty and the speed of technological change.