February 16, 2025

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Chevron Focuses on Direct Gas Sales Instead of LNG Plant Investment

Chevron Focuses on Direct Gas Sales Instead of LNG Plant Investment

Chevron Corporation CVX has taken a decisive step in its energy strategy by choosing not to invest in a U.S. liquefied natural gas (LNG) plant. Instead, the company is shifting its focus toward selling gas directly to the market, taking full advantage of the United States’ expansive midstream market. This strategic choice, which reflects the company’s long-term goals in natural gas monetization without the need for LNG conversion infrastructure, is significant for CVX and the LNG sector as a whole.

Chevron’s U.S. Gas Monetization Strategy

Chevron’s midstream head, Colin Parfitt, emphasized the company’s ability to monetize the U.S. gas effectively without converting it to LNG. The robust U.S. midstream market infrastructure allows CVX to tap into lucrative natural gas deals that bypass the need for expensive LNG plant investments.

In an interview, Parfitt stated, “We chose not to do the owning and operating but we do deals that allow us to have production of gas in the United States and translate it into LNG for our customers.” CVX has taken a strategic stance by leveraging partnerships and sales agreements to position itself as a key player in the global gas market without assuming the financial risks associated with LNG plant ownership.

Why Chevron Opted Out of LNG Plant Ownership

The decision to forgo an equity stake in the Driftwood LNG project in Louisiana, which is operated by Woodside Energy, reflects CVX’s conservative investment approach. This LNG project, expected to produce 27.6 million tons per annum, is a significant project and Woodside is reportedly considering selling up to a 50% stake. However, CVX has made clear that it will not be taking a direct equity position in the venture.

Instead, CVX is opting to partner through sales and purchase agreements (SPAs), which allow it to benefit from LNG production without the operational and financial burdens of building and operating the facilities. This approach not only mitigates risks but also frees up capital to pursue other opportunities within CVX’s portfolio.

Chevron’s Partnerships With Leading LNG Developers

Chevron has established strategic agreements with top-tier LNG developers such as Cheniere Energy, Inc. LNG and Venture Global LNG. These partnerships enable CVX to secure access to LNG supplies for its customers without investing directly in infrastructure. However, the company remains vigilant in managing these relationships, especially given the contract disputes that have arisen between Venture Global and its major customers.

Parfitt highlighted CVX’s proactive approach to these challenges, stating, “Our view is if we have an issue with a supplier, then we talk to them, and we do talk to Venture Global very directly.” This highlights Chevron’s commitment to ensuring long-term reliability and transparency in its supply-chain relationships, which is essential given the complexity and scale of the LNG market.

Challenges in the U.S. LNG Industry

The U.S. LNG industry faces several hurdles, particularly with respect to large-scale projects. Many of these ventures are plagued by delays and the current regulatory environment adds to further uncertainty. The Biden administration’s pause on export reviews for LNG projects bound for non-free-trade-agreement countries has caused significant disruption. As a result, LNG export approvals have slowed, delaying the launch of future projects.

For CVX, this policy environment presents both challenges and opportunities. By choosing not to invest directly in infrastructure, Chevron avoids the regulatory risks associated with LNG plant construction and operation, while still being able to capitalize on export opportunities through its SPAs.

Importance of U.S. Natural Gas in the Global Market

Chevron’s strategy also ties into the broader geopolitical and economic significance of U.S. natural gas. As one of the largest producers of natural gas in the Permian Basin, CVX is positioned to support global energy demands, particularly in regions where LNG imports are critical to meet consumption needs.

CEO Michael Wirth has been a vocal advocate for the role of natural gas in advancing artificial intelligence (AI) technologies and supporting global climate goals. In a recent statement, Wirth criticized the Biden administration’s policies on natural gas, emphasizing that natural gas is crucial not only for energy security but also for AI data center development, which relies on consistent and affordable power.

Impact of AI on the Natural Gas Industry

Becoming the center of economic and technological growth, the energy requirements of AI data centers have come under scrutiny. The White House’s establishment of a task force focused on aligning AI infrastructure policies with environmental and economic goals highlights the growing importance of sustainable energy in powering AI development.

Chevron’s natural gas production, particularly from the Permian Basin, is expected to play a key role in meeting these energy demands. Natural gas is considered a bridge fuel, offering a lower-carbon alternative to coal and oil while supporting the renewable energy transition.

Chevron’s Forward-Looking LNG Strategy

Chevron’s decision to forgo direct investment in a U.S. LNG plant while focusing on SPAs with LNG developers is a strategic move designed to optimize its financial and operational efficiency. By capitalizing on the robust U.S. midstream infrastructure and avoiding the complexities of LNG plant ownership, Chevron ensures that it remains competitive in the global gas market.

Despite regulatory challenges and project delays in the LNG industry, Chevron’s flexible and partnership-focused approach sets it up for long-term success in monetizing the company’s U.S. natural gas assets. This strategy aligns with its broader goals of advancing AI technologies and meeting the growing global demand for cleaner energy solutions.  As CVX deals with the challenges in U.S. natural gas and LNG markets, the company’s focus on strong partnerships, making the most of its assets and managing regulations will be key to staying ahead in the energy industry.

Zacks Rank & Key Picks

Currently, CVX and LNG hold a Zacks Rank of #3 (Hold) each.

Investors interested in the energy sector might look at some better-ranked stocks like TechnipFMC plc FTI and Vaalco Energy, Inc. EGY, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

TechnipFMC is valued at $11.66 billion. In the past year, its shares have risen 29.3%. FTI is a leading manufacturer and supplier of products, services and fully integrated technology solutions for the energy industry.

Houston, TX-based Vaalco Energy is valued at $608.97 million. The oil and gas exploration and production company currently pays a dividend of 25 cents per share, or 4.26%, on an annual basis. EGY is an independent energy company principally engaged in the acquisition, exploration, development and production of crude oil and natural gas.

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Chevron Corporation (CVX) : Free Stock Analysis Report

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Vaalco Energy Inc (EGY) : Free Stock Analysis Report

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