Chevron (NYSE:CVX) will no doubt rise, especially now that it has secured a strong foothold in the supply of Japan's demand for liquefied natural gas (LNG). News has it that Chevron has signed a contract with Tohuku Electric Power, a Japanese utility company, to supply it 1,000,000 metric tonnes of Liquified Natural Gas. The supply of the LNG will come from its huge Wheatstone project in Australia. According to Roy Krywosinski, the managing director for Chevron in Australia "This off-take agreement for Wheatstone demonstrates our Australian LNG projects are in the right geographic location at the right time to meet Asia's rapidly growing demand for cleaner burning natural gas."
Japan had made the decision to move away from the use of nuclear energy and toward LNG fuel last year. The change in fuel was necessitated by the ugly realization of the dangers posed by nuclear energy after the country experienced a major nuclear disaster in Fukushima. This new demand for LNG has made Japan a hot market because Japan completely closed down the last of its nuclear plants last week, leaving the energy sector deficient of the 30% power that was previously generated by these nuclear plants.
However, Chevron is not the only one that will benefit from the open doors in Japan because its competitors, such as ConocoPhillips (NYSE:COP) and Apache (NYSE:APA), are also set to supply some of the demand to Japan at least for the next 20 years. Yet, the competition will not see Chevron losing money because the demand is currently more than the supply. Thus, given the fact that the price of LNG has climbed up in the last few days because of the Japanese demands, Chevron and ConocoPhillips are sure to both turn a handsome profit.
Nevertheless, given the long scope of the deal (20 years) it is only normal for the market to become balanced, with supply matching the demand, and that will invariably bring prices down. However, this is only a long-term projection and without much ado, I can say that Chevron is set to rise in the short-term on the Japanese demand.
In another development, Chevron has been confirmed for a new Ukrainian gas deal in which it has received a license that will allow it to explore the Olesska shale gas block located in the west of Ukraine. The deal, which was approved for Chevron by the Ukrainian Cabinet of Ministers, will see Chevron increasing its power base in Europe significantly. This is because the area to be explored covers about 1.6 million acres in the potentially rich region.
Also, an interesting snippet is that Chevron was in the race for the Ukrainian exploration right with Royal Dutch Shell (NYSE:RDS.A). In fact, according to Reuters, Exxon Mobil (NYSE:XOM), Italy's Eni (NYSE:E) and TNK-BP Holding also submitted bids in February. However, it seems that Chevron has beaten its major competitors to earn the winning bids for exploration rights in the region.
The European Commission has allowed Chevron and other notable players in the oil and gas industry such as BP to carry out its intended acquisition of Angola LNG in a joint venture that will see it producing and selling LNG to a global market for re-gasification. With the new deal, Chevron is set to be a leading supplier of LNG, and if the Asian demand for LNG continues at the current rate, then shareholders of Chevron should get ready for a long season of success.
On the legal side of things, some charges in the RICO complaint that Chevron brought against the attorneys in the Ecuadorean pollution case brought against Chevron last year were upheld by the court. You may remember that Chevron was asked to pay $18 billion last year as compensation and fine for Texaco's alleged dumping of toxic drilling waste in the Ecuadorean jungle, which was said to result in the loss of lives and the destruction of the ecosystem.
The U.S court recently narrowed the racketeering claims filed by Chevron, while dismissing the claims of fraud. However, it is still too early to state what direction the case may take; yet, the mere fact that the court upheld some of the claims may be good news for Chevron. This is because it will give Chevron the opportunity to clear its name and redeem its image for corporate responsibility. This would go a long way as the company clears its name in a region that has claimed a substantial amount of wrong-doing against Chevron. If it can get the law on its side, it should not have to worry about backlash coming from its operations in Ecuador.
However, there are yet still more lawsuits, as Oxfam America has dragged the U.S. Securities commission to court over its failure to compel oil companies like Chevron to disclose how much they pay to foreign governments. The response of Carton Carroll, (a spokesman for the American Petroleum Institute) said that "would give foreign companies access to confidential, proprietary information that they could use against U.S. companies when competing for crucial energy resources around the globe." Clearly, it thinks it best to keep its finances to itself, and not allow for potential harmful parties being privy to its records.
In essence, with the general look of things, I will say that Chevron is a stock to trust to rise consistently in the coming quarters. Thus, as a long as there is a market for Liquefied Natural Gas you can be sure that Chevron will continue to rise. More so, barring any unforeseen events, Chevron is set to redeem its image of corporate responsibility and this will also help to see its stock remain on the rise. The Japan work will be huge, so make sure to monitor that, with everything else also in the periphery.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.