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Oil giant ExxonMobil Corporation (XOM - Analyst Report) plans to develop a huge floating liquefied natural gas project (FLNG) to process gas from its Scarborough field, off the coast of Western Australia. The project is in response to the rising cost of setting up LNG plants onshore Australia.

ExxonMobil jointly holds the project with mining giant BHP Billiton Ltd.(BHP - Analyst Report). Per the filing, both the partners will decide on whether to proceed with the initial design and engineering work of the floating LNG venture in 2014 or 2015, while the project is expected to be commissioned in 2020 or 2021. The field is estimated to produce 6–7 million tons of LNG per year.

Other energy companies like Royal Dutch Shell plc (RDS.A - Analyst Report) and Malaysia’s Petroliam Nasional Bhd have already started working on these projects. Royal Dutch is building a Prelude floating LNG vessel in Australia estimated to cost around $12 billion, with a capacity to produce approximately 3.6 million tons of LNG annually.

Chevron Corporation (CVX - Analyst Report) along with its partners has plans to invest about $52 billion for the construction of the Gorgon onshore LNG plant that has a capability of generating 15 million tons of LNG annually.

Floating LNG plants score over onshore plants in many respects. FLNG are smaller in size, cost less for construction and also have a lower environmental impact. Further, issues of native title and land clearing approvals are not needed. Onshore plants entail huge expenditures for infrastructure, which include extensive pipelines, jetties and roads that are not significant in FLNG projects.

In this scenario, ExxonMobil’s entry into this segment will be immensely beneficial over the long term.

Exxon Mobil holds a Zacks Rank #3, which is equivalent to a short-term Hold rating.

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