"Table of ContentsCVX, EOG, ECA, APA, RDSA ....................................................................................................................... 3What the Kitimat Project Entails ............................................................................................................... 3Why Chevron Did the Right Thing by Purchasing 50% at Kitimat ............................................................. 3If natural gas prices fall in the first quarter, Chevron's profitability will not be affected. ....................... 4How the Purchase will Affect Chevron’s Competitors .............................................................................. 5Conclusion ................................................................................................................................................. 6 CVX, EOG, ECA, APA, RDSALeif Sollid, Chevron's (CVX) spokesperson in Canada, announced that the oil major willpurchase a 50% stake at a proposed LNG terminal in Kitimat, British Columbia. Kitimat haspromising natural gas deposits and the proposed project holds a Canadian license to export 10million tons of LNG/year. Analysts have noted that natural gas prices are low and may not helpChevron much. I feel Chevron's profitability will not be affected by natural gas prices andinstead, will help it to increase its LNG exports in the long run and enter the valuable Asiannatural gas market. What the Kitimat Project EntailsThe Kitimat project was jointly owned by EOG Resources (EOG), (held 30%), EncanaCorporation (ECA) (held 30%) and Apache Corporation (APA), which held 40%. Chevronwill now hold 50% of the project and Apache will hold the other 50%, up from 40%. None of thecompanies disclosed the financial terms of the agreement. The project is located 400 miles northof Vancouver and consists of 290 miles of pipeline. Chevron will convert natural gas into liquidby freezing the gas at minus 260 degrees and ship it to Asian countries such as China, Japan andSouth Korea. Why Chevron Did the Right Thing by Purchasing 50% at KitimatThere is a great demand for clean fuel and wit increasing affluence in China, the demand for fuelwill only increase in the coming years. Leif Sollid also remarked that Chevron has a global LNGstrategy and the $1.3 billion purchase will help the oil giant to meet the demands of Asiancountries. PetroChina, Mitsubishi and Korea Gas have all announced their plans to build LNG export terminals at Kitimat. One can clearly see that Chevron has a ready clientele from China,Japan and Korea, respectively. However, oil prices have declined by 16% through the year andthough natural gas prices are lower than they should be, the prices have increased by 19% in2012. Natural gas in Asia sells at a premium and costs at least 3 times more than it does in theU.S. or Canada.If natural gas prices fall in the first quarter, Chevron's profitability will not beaffected. Lior Cohen, an analyst used the chart above to suggest that the price of oil will have a greaterinfluence on Chevron's profitability than the price of gas. Thus, falling natural gas prices will nothurt Chevron's profitability in the long run, and will only help the company to seek newermarkets for natural gas (where it sells at a premium, 3 times the price of North America) andincrease revenue. How the Purchase will Affect Chevron’s CompetitorsApache will increase its stake in Kitimat from 40% to 50%. The Houston-based company islooking at exporting natural gas to Asian markets as well. Apache's chairman and chief executiveSteven Farris said that the company has a proven record in developing shale gas and the newarrangement with Chevron will help the company to grow further in British Columbia, often seenas the most lucrative oil and gas destination in North America. EOG resources on the other hand made $450 million by selling its 30% stake in the project. Thecompany revealed that it had very little interest in pursuing the project and exiting it helped it toincrease its capital. EOG has not commented how it plans to use the $450 million. Randy Eresman, Encana’s President and CEO, agreed with EOG's position and said that the salewill help the company to concentrate on its core business. Encana might have sold its stake butwill continue to support LNG exports as the company believes in the profits that can be madewith the help of natural gas in the long run. Meanwhile, Shell (RDSA) has ambitious plans toproduce almost 14 million tons per annum at its LNG project on the West Coast. It has teamedwith Mitsubishi, Korea Gas and PetroChina. Shell has been at the forefront of LNG exports notonly in the U.S. and Canada but also in Nigeria and Russia."