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ExxonMobil Seeks to Export LNG (REVISED)

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(NOTE: We have revised this article to correct an error in the earlier version, which should no longer be relied upon.)

ExxonMobil Corporation (XOM) and Qatar Petroleum International have applied for regulatory approval for the export of U.S. liquefied natural gas (LNG) from a terminal near the Texas-Louisiana border.

A joint venture between the U.S. energy major and Qatar Petroleum − Golden Pass Products LLC − plans to export up to 15.6 million tons of LNG annually, or about 2 billion cubic feet per day, by expanding existing units at Port Arthur. The project, which is pending approvals from the Department of Energy and Federal Energy Regulatory Commission, could take as many as five years to build the liquefaction facilities at the terminal.

Per the agreement, the parties will export LNG to countries with which the U.S. has a free-trade settlement and intend to invest up to $10 billion in the project. ExxonMobil holds a 30% stake in the Golden Pass Products while Qatar holds the remaining 70%.

The growing use of hydraulic fracturing techniques in the extraction of oil and natural gas liquids from shale has led to the excess supply of natural gas. Hence, after years of investing billions of dollars in building import terminals to ship fuel from places like Qatar and West Africa, energy companies in the U.S. are now looking to make the country a major energy exporter. After suffering a collapse in domestic prices, the U.S. natural gas companies are now looking to sell the surplus gas to international markets at much higher prices.

A major contender, Cheniere Energy Inc. (LNG) has already started construction of a $5.6 billion terminal at Sabine Pass, Louisiana – near Exxon‘s Golden Pass facility – and has authorization to transport LNG globally from the terminal. Cheniere will likely start deliveries by 2015 and to U.K., South Korea, India and Spain customers.

Hence, ExxonMobil’s contribution along with Cheniere and others to export LNG from the U.S. − which produces about 72 billion cubic feet of natural gas per day − will enhance domestic exports, thereby generating employment and boosting the country’s economy.

Some analysts however criticize the move, contending that export will increase prices for domestic consumers. Additionally, it will also lead to the increased use of hydraulic fracturing, which could cause pollution. These analysts are worried that water supply will be contaminated by hydraulic fracturing or fracking while tapping gas in the shale rock formation as it involves the explosion of rock with chemical-laced water and sand under the surface.

We maintain our long-term Neutral recommendation for ExxonMobil, the largest natural gas producer in the U.S. ahead of Chesapeake Energy Corporation (CHK). The company holds a Zacks #3 Rank (short-term Hold rating).

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