Exxon Mobil's (XOM) CEO Rex Tillerson is once again banging the drums for faster reform and less government restrictions in an effort to provide the world with more liquefied natural gas (LNG) and compressed natural gas. If you remember, Tillerson was on this same bandwagon on the government's responsibility in allowing companies like Exxon Mobil to export LNG from the U.S. But the main problem is that there are not enough processing centers located in the U.S. for companies to export CNG or LNG to areas in the world that will benefit from more supplies. Currently, LNG and CNG are trading at 7 times the value of the spot price here in the U.S.
Tillerson spoke recently at the 25th Century World Gas Conference in Malaysia this past week about the importance of natural gas in the world's growing economy. Tillerson also believes that Exxon Mobil, the world's largest producer of natural gas, is well positioned for when natural gas, CNG and LNG replace coal as the second most used form of energy by 2025.
Tillerson believes that the energy markets are in a historic moment and that natural gas will power the next industrial revolution now beginning in the Asia-Pacific region of the world. Tillerson also believes that now is the moment to shape policy for future generations to benefit from the cleaner burning fuel. Demand for energy in the Asia-Pacific region is expected to grow by 50% over the next 30 years and Tillerson wants natural gas to be the fuel of choice.
Exxon Mobil is pushing for exports of LNG and CNG from the U.S. to the Asia-Pacific region countries that are in need of more LNG and CNG at competitive prices - which U.S. exports would help ease. Unfortunately, the political climate is not set for such actions to take place in rapid succession and most observers think that there will be no permitting of new LNG or CNG facilities until after the November 2012 elections.
It makes sense that the 3 majors, Exxon Mobil, Chevron (CVX) and ConocoPhillips (COP) are eager to start exporting U.S. LNG and CNG with prices in Asia looking more and more attractive going forward. Japan is playing a lead role in propping the price of natural gas because of its need to convert many nuclear power plants into natural gas after the latest round of earthquakes and tsunami's in 2011. American companies' like Sempra (SRE) and Dominion Resources (DOM) have applied for and been granted permits that would allow them to build the necessary plants to convert natural gas into LNG or CNG.
Exxon Mobil is not waiting for the U.S. in trying to develop new fields closer to Asia and Exxon Mobil need look no further than Australia. Recently, Exxon Mobil signed a contract with Ignite Energy Resources for a 10% stake in the Gippsland Basin located in Victoria, Australia. Exxon Mobil will assist in developing the Gippsland Basin coal seam operation, which contains upwards of 35 trillion cubic feet of natural gas. Exxon Mobil has acknowledged that this operation is dwarfed in comparison to such fields as Gorgon. The contract is intriguing because the location of Gippsland Basin allows for easy access to pipelines and processing centers that should help bring the overall cost of production down.
Production costs in Australia have recently gone up because of governmental moves that might prove to be harmful for Australia's new energy frontier of natural gas. Emma Cochrane, head of marketing for Exxon Mobil in Asia-Pacific and Africa, spoke at the Australian Petroleum Production and Exploration Association last week and believed the introduction of a price on carbon and changes to the tax rates will increase total production. The increased costs over time might make Australia a less attractive place for exploration and development dollars going forward.
In other Australian news, Exxon Mobil, in early May 2012, hired Transocean Deepwater Frontier to assist in drilling the first 10 wells offshore in the Jansz-lo project which is part of the overall Gorgon LNG Project. Exxon Mobil holds a 25% stake in the Gorgon LNG Project, with Chevron Corporation holding 47%, while Royal Dutch Shell holds another 25% in the project which is located in waters off of Australia.
I believe that Exxon Mobil is in a good position to bolster production in Australia and I believe this will bolster earnings and revenues in the future for Exxon Mobil. In Asia, the price of natural gas may go down, but in the U.S., I think the price has stabilized at above $2 and by year's end I believe the price will once again hit $3 based on demand. I like Exxon Mobil too because it is resilient in times of market instability.
Exxon Mobil has been talking about exporting LNG and CNG since 2009 and has made progress each year. Australia will be big for Exxon Mobil, as well as for Chevron, but the demand in the Asia-Pacific region will increase steadily. It is all about the cost of transportation from the well to the consumer. Another thing I like about Exxon Mobil and its Australian fields is that Japan is a huge market and Japan needs energy now. With the price of LNG in Japan hovering over $16 per unit, Exxon Mobil is in a good position to take advantage of the price in upcoming years. Sure, the price will stabilize in Japan, but this is just one example of the need for LNG, CNG and natural gas in the Asia-Pacific area.
Overall, Exxon Mobil has been a sturdy ship in a bearish oil market. Exxon Mobil is about 8% off its 52-high week and could easily reach $88 per share before the market settles from its European jitters. As Exxon Mobil gains ground in exporting its CNG and LNG. Revenues should increase, and as time goes along, transportation costs will be reduced too. The dividend is projected to be $2.28 in 2012, which is an attractive yield of almost 3%, and with a projected price target among analysts to be around $95, there could be a good 20% gain with a purchase around the $80 level. I believe investors can make money with Exxon Mobil.