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Exxon Mobil Corporation Bets On Liquefied Natural Gas To Drive Stock Price

  • Exxon is investing significantly in LNG projects which demonstrate its belief in the increasing long-term demand for LNG.
  • LNG demand will rise 1.9% a year through 2040, more than double the rate for crude oil.
  • Oil and LNG prices are poised to increase significantly, which will drive Exxon's earnings, causing a rise in its stock price.
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Despite falling prices, Exxon Mobil Corporation (NYSE:XOM), the world’s largest publicly traded international oil and gas company, believes in the long-term increasing demand for liquefied natural gas (LNG). Right now, there is an oversupply of LNG, as new LNG export terminals have come online, which has caused its price to fall sharply. Prices are expected to remain depressed, and some companies are canceling new LNG projects. The change in the price of LNG in different countries in the last year is shown in the table below.

However, Exxon sees robust demand for LNG over the long-term, and it is investing significant capital in new projects. According to OilPrice.com, Exxon spent between $2.3 and $3.6 billion for InterOil’s natural gas assets in Papua New Guinea in July, which can be viewed as a long-term bet on LNG. Moreover, Bloomberg reported that Exxon is also in talks to purchase gas assets in Mozambique. Both moves demonstrate Exxon's belief in the growing demand for LNG in the coming years. Exxon's internal projections are that LNG demand will rise 1.6% a year through 2040, more than double the rate for crude oil. However, while Exxon's internal projections, which is used for the company's investments, is for increasing LNG demand by 1.6% a year, U.S. Energy Information Administration expects even higher growing demand at 1.9% a year.

Source: Exxon's Second Quarter 2016 Presentation

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