From an investment perspective, Chevron’s bet of turning an Australian island into a liquefied natural gas-exporting hub has been hobbled by increased supplies, falling prices, and a resulting power shift to buyers.
But given that most of the capital expenditures have already been made, Chevron’s Gorgon and Wheatstone projects will generate “fantastic revenue” and free cash flow for many decades to come.
With currently low natural gas prices, the investment returns on the projects might not be positive, but commodity prices are unlikely to stay low forever and the market has already priced in a pretty bad scenario.
This helps financially strong companies like Chevron to continue to pay out their dividend, and the free cash flow from these projects will help support the payout for a long time to come.
For more information:
Gas Glut Hands Pricing Power to Buyers (WSJ)
Falling Prices Test Chevron’s Multibillion-Dollar Gorgon Gas Bet (WSJ)
By clicking on this link, you will be leaving the New Vernon Wealth Management website.