The world's largest oil and gas company in terms of market capitalization, Exxon Mobil (NYSE:XOM), recently requested Canadian authorities for a permit to set up a liquefied natural gas (LNG) export terminal on the country's Pacific coast. The move is intended to benefit from the huge differential in natural gas prices present across the Pacific Ocean. Abundant shale gas in the U.S. has led to sharply lower natural gas prices in the North America as compared to the Asian markets, where demand is outpacing supply.
Due to the shale gas supply shock, natural gas prices in the U.S. are significantly lower than the rest of the world. While Henry Hub natural gas prices in the U.S. continue to stay close to $4, the prices in Japan and the European Union have been trading over $14 and $12 per 1,000 cubic feet, respectively. This stark difference in prices makes a solid case for export of natural gas from the U.S. to Asia and Europe, even after considering the net impact of transportation costs. Therefore, oil and gas companies around the world are investing in LNG terminals that can be used to transport the natural gas to these Asian countries.
Exxon is not the only company to apply for an LNG terminal on the pacific coast of British Columbia. Recently, BG Group submitted a proposal for another LNG terminal in Prince Rupert. The three projects approved so far by the Canadian officials in this area include the one backed by Apache (NYSE:APA) and Chevron (NYSE:CVX) and the one led by Royal Dutch Shell (NYSE:RDS.A). However, none of these projects have reached a final investment decision yet.
Exxon is looking at areas within Kitimat and Prince Rupert cities of British Columbia as potential construction sites for the LNG plant that would include six processing units. If approved and implemented, the proposed project would have liquefaction capacity of up to 4 billion cubic feet of natural gas per year and could start exporting LNG by 2021. Natural gas for the project would primarily be sourced from Canadian fields where Exxon holds acreage. However, other shale basins in the North America region could also be used.
Exxon is invested in a lot of LNG assets worldwide including 10 to 30% stake in Qatar's LNG projects and the Chevron-led $52 billion Gorgon project in Australia. Last month, the company also entered into negotiations for developing natural gas discoveries in Papua New Guinea that could be fed to a $19 billion LNG project being built by Exxon on the country's coast. It is also waiting for a nod from the U.S. Department of Energy for its Golden Pass terminal near Port Arthur, Texas.