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Will Chevron's Kitimat LNG Become an All-Electric Plant?

Zacks Equity Research

In a bid to curb greenhouse-gas emissions, Chevron CVX is reportedly seeking approval of its plan to modify the Kitimat LNG facility to an ‘all-electric’ design, powered by hydroelectricity. If the proposed plan materializes, the plant will achieve the lowest emission intensity among all large-scale LNG projects in the world. While LNG creation involving cooling gas causes environmental damage, Kitimat LNG proposes electric motor drives to run all liquefaction process and utility compressors.

Notably, in April 2019, the company applied to the National Energy Board of Canada for nearly doubling the Kitimat LNG plant size. Chevron has Woodside Energy Ltd. of Australia as the 50-50 joint-venture partner in the project.Targeting to reduce the cost of supply, Chevron revised its plans for the Kitimat LNG plant, which would now include three trains having 18 million tons per annum (Mtpa) of production capacity. The project is not expected to come online before 2023 and production is likely to commence in 2029.

Although Chevron’s Kitimat LNG project awaits final investment decision, it is expected to lead to tremendous growth possibilities in the long term. The plant, which will increase the demand for domestically-produced natural gas, is located at a strategically significant position — in the West coast of Canada, close to Asia — for export. Hence, Chevron will be able to easily address the rising demand for cleaner energy sources in the domestic market as well as in Asia, avoiding the long and costly route through the eastern side and using the Panama Canal.

Notably, the company has Shell RDS.A as a competitor in the region. The Netherlands-based integrated company is also developing another LNG plant in Kitimat with its partners including PetroChina PTR, among others. The facility is expected to have a 14-Mtpa initial production capacity, having the option of doubling it with increasing demand.

Zacks Rank and Key Pick

Currently, Chevron has a Zacks Rank #3 (Hold). A better-ranked stock in the same industry is TOTAL S.A. TOT, which carries a Zacks Rank #2 (Buy). TOTAL’s 2019 and 2020 earnings are expected to grow 7.33% and 17.08%, respectively.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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