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Chevron prefers buying US LNG to building export projects

Chevron sees its commitments to buy US LNG volumes under a series of long-term deals with US exporters as helping to lay the foundation for an Atlantic Basin LNG portfolio that the oil and gas giant aims to build in the coming years, Chevron executives told S&P Global Commodity Insights.

But the integrated major’s preference for signing long-term contracts with third-party US LNG developers instead of taking a direct stake in a project or building its own facility marks a paradigm shift from the strategy that made Chevron a major LNG player in the Pacific, where it operates the Gorgon and Wheatstone projects.

Chevron’s foray into US LNG offtake also reflects a different approach compared to peers including ExxonMobil, ConocoPhillips and TotalEnergies, which have all made major investments in new US liquefaction facilities.

Yet in the US, Chevron is comfortable with its buy-rather-than-build approach. Executives described Chevron’s contracting for US LNG offtake as aligned with the company’s goals of selling more of its growing Permian Basin production to international markets, while leaving US midstream infrastructure development mostly to third parties as the company focuses its investments upstream and downstream.

“We really looked at building our own plants — and does it make sense in the US, tying up our capital — but we have so much opportunity for investment in the Permian,” Freeman Shaheen, Chevron’s president of global gas, said in a recent interview with a small group of journalists at the LNG2023 conference in Vancouver, British Columbia. “We can drill in the Permian for decades. And so when you look at capital, it has got to compete.”

“This is the first time in my 33-year career where I see the strategies have really diverged across the major oil companies. That value, in our portfolio, it’s not competing now to be able to pull those dollars over.”

Offtake deals

After remaining absent during the previous wave of investment in US LNG projects, Chevron in June 2022 signed four long-term sale and purchase agreements for a total 4 million mt/year of supply from exporters Cheniere and Venture Global.

Under the SPAs, half of the volumes will come from Cheniere’s Sabine Pass LNG terminal in Louisiana and a planned expansion of Cheniere’s Corpus Christi LNG plant in Texas. The other half would come from Venture Global’s Plaquemines LNG facility under construction in Louisiana and its proposed CP2 LNG project in the state.

Deliveries under the deals are expected to start in 2026 before ramping up to the full volumes in 2027.

Making the LNG offtake commitments across the Cheniere and Venture Global progress helps diversify Chevron’s LNG supply and spread project risk, Chevron’s John Kuehn, president of supply and trading, said in a separate interview at the conference. Securing the capacity stands to offer an important outlet for Chevron’s gas production in the Permian Basin, where the company is one of the top producers and holds some 2.2 million acres.

The Chevron executives, who said the company would continue to look at US LNG offtake opportunities, also cited the status of Cheniere and Venture Global as existing US exporters and the company’s commitments to lowering emissions as important factors in signing the deals.

Beyond the US volumes, Chevron has large gas positions in Equatorial Guinea and the East Mediterranean, where the company with its partners has pursued an expansion of Leviathan gas field offshore Israel including potential floating LNG project. Chevron also has a stake in the Angola LNG project in West Africa.

“We can become an Atlantic Basin portfolio player and hence, a global portfolio player,” Kuehn said. “We are in the process of building an LNG business at Chevron. At the highest level, we aspire for that to look like our crude and products trading business, where it’s a material contributor to monetizing our equity gas, just like we do on crude and products, and it’s a global trading portfolio.”

Third-party providers

The Gorgon and Wheatstone projects, which came online in 2016 and 2018, incurred billions of dollars in cost overruns during their development that could have limited Chevron’s appetite for investing in more LNG megaprojects.

But one reason Chevron executives cited for contracting for US LNG offtake capacity rather than constructing it is that in the US, a robust midstream sector means that Chevron does not have to build a major export project to develop its oil and gas reserves.

“We don’t invest a lot of our capital ourselves into the midstream space,” Kuehn said. “In our capital discipline mode, the best place for us to spend it, where it’s most competitive in our portfolio, is upstream or downstream. There are other folks like Cheniere and Venture Global that are really the experts in that midstream space. So we can deploy our commitments and they deploy their capital, and it fits our model.”

That is a key difference from Australia.

“We are typically going to go use those third-party providers, but it wouldn’t preclude us from making our own investment,” Kuehn said. “If it’s the difference between ‘it stays in the ground’ or ‘it comes out quicker,’ that’s, again, where we would be more likely to deploy our own capital.”

Source: Platts

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