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The Commodity Investor Q&A

By Matt Badiali, editor, S&A Resource Report
Wednesday, December 30, 2009

Q: You recently wrote about ExxonMobil jumping into the U.S. natural gas market. I always thought of them as an oil company. Is this completely out of character? – J.B.
 
A: Energy giant ExxonMobil's recent acquisition of U.S. natural gas giant XTO Energy caused a fuss. But it was simply the first manifestation of Exxon's global strategy here at home.
 
Exxon focuses on giant energy projects at great prices. For the past few years, those projects were mostly outside the U.S.
 
In 2007, Exxon completed a giant liquefied natural gas (LNG) project in Qatar. In 2008, the company targeted the giant Kearl oilsands project in Canada. This year, it focused on the giant Gorgon liquid natural gas (LNG) project offshore Australia. These are all enormous endeavors that take years to develop. But eventually, they pay off.
 
In 2009, the company sold about 11 billion cubic feet of natural gas per day to a huge range of customers. That's about 4% of the total world demand – an enormous amount for a non-government controlled oil company. Its customers are mainly power generators, including the fourth-largest power company in the world, Tokyo Electric Power Company (TEPCO).
 
Most of Exxon's recent natural gas projects are in Australia and Asia. That part of the world spent well over $210 billion on natural gas infrastructure and contracts in 2009. That kind of money attracts big players like Exxon.
 
And the company is constantly on the lookout for new projects.
 
Exxon's latest one, announced in early December 2009, is in Southeast Asia. It's investing $15 billion to produce and ship liquefied natural gas (LNG) to Asia's biggest customers. The company already signed 20-year supply agreements with TEPCO, Japanese Osaka gas, and the giant Chinese oil company Sinopec.
 
(Asian demand for natural gas is growing so quickly, I wanted to see the opportunities before they were gone. I recently traveled the area, and the potential is huge for small-cap energy investments. To read more about my trip, click here.)
 
Tom Walters, who heads up Exxon's Gas & Power Marketing Company, told attendees at the International Petroleum Technology Conference in Doha, Qatar, that the world's energy demands would grow 35% from 2005 to 2030. That puts global energy demand around 300 million barrels of oil equivalent per day... and much of that must come from natural gas.
 
Now, the price of natural gas here in the U.S. doesn't reflect the price of natural gas in the world. We don't have any export LNG terminals. In other words, domestic demand caps U.S. natural gas prices. So Exxon bought XTO because it was probably the largest aggregation of natural gas at the lowest price around.
 
With Exxon's expertise at building LNG terminals in far-flung places, I'll bet there's a plan afoot to build some here in the States in the not-too-distant future. That's especially likely when companies are willing to lock in 20-year supply agreements.
 
Exxon is thinking two decades down the road, and it sees a robust natural gas trade. The company is in position to be the largest supplier of natural gas in the world. Energy investors should take heed. If you don't currently own shares of ExxonMobil, the world's foremost energy company, you should.
 
Good investing,
 
Matt Badiali




In The Daily Crux
Market Notes
Natural resource-rich Chile advances... new 52-week highs for Chile Fund and iShares Chile.
 
Nike shrugs off Tiger Woods sex scandal to reach a fresh high.
 
Overseas shipping climbs... Teekay, Alexander & Baldwin hit new highs.
 
Funeral home giant Service Corp reaches new 52-week high... up 200% from March bottom.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
Change
52-Wk
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%

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