Colossus of Exxon

Is Exxon building Big Oil's skyscraper equivalent?

Modern stock market bubbles have produced their own exclamation points: skyscrapers. Yet, as historians have pointed out, the construction of these great edifices often coincided with asset-price peaks. Could Exxon Mobil be on the precipice of building Big Oil's equivalent of just such a folly?

The Texas energy behemoth, in cahoots with BHP Billiton, recently detailed plans for the Scarborough platform, a facility to process and export liquefied natural gas 220 kilometers off the Australian coast. At around half a kilometer, it would be about as long as one of the world's tallest buildings, the Taipei World Financial Center, is high.
 
The project, which will cost the partners some $24 billion, may take around five years to build. That is about how much time Royal Dutch Shell will need to finish construction of what may only briefly be the globe's largest floating object - a $12 billion, 488-meter-long offshore LNG facility.

The worry is that these monster islands will open just as prices for gas begin to fizzle amid new sources of supply. In this respect, the analogy to landlubber equivalents may be apt. Dresdner Kleinwort's Andrew Lawrence first pointed out the link between architectural ambition and financial crises in the late 1990s.

The erection of three record-breaking buildings in New York, including the Empire State Building - came shortly before the Great Depression. Chicago's Sears Tower went up in 1973, just before a severe economic downturn. The Petronas Towers in Kuala Lumpur opened as Asia went into a financial crisis. Ditto the tallest building on the planet, the Burj Khalifa, whose arrival came just as Dubai sank into a bailout from wealthier neighbour Abu Dhabi.

Oil companies seem confident the ominous skyscraper principle does not apply to them. They're pitching their colossi to shareholders as money-savers, saying the cost of building LNG plants on mainland Australia has been spiralling amid booming labour costs.

But structural marvels often encounter technical hitches and run over budget. Long lead times add to the risk. Shell's giant comes online in 2017 and the Scarborough would only start operating around 2020. There are already new LNG plants in the works that promise to add a third to global capacity, consultancy IHS estimates.

Of course, the energy business differs from the stock and real-estate markets. Exxon will be hoping this history makes a flawed guide, or it may end up stuck with the world's biggest cruise ship.