Follow the Leader

What do you do when America’s largest corporation and one of the world’s top oil producers’ drops $31 billion to buy one of the country’s largest producers of natural gas? This is the question being asked of Congress after ExxonMobil’s recent purchase of XTO Energy.

To be honest it is one of many interesting questions that stem from ExxonMobil’s foray in to the world of natural gas:  

Does this signify a change of heart by a company that is often portrayed as Public Enemy Number One by many environmentalists?

Should peak oil alarmists view this as ExxonMobil hedging their bets on oil because it is running out and raise the victory flag for peakists across the globe?

Whatever happened to T. Boone Pickens and the Pickens Plan?

 Let’s start with the original question posed for Congress. The simple fact is ExxonMobil is a lot like Walmart in the respect that if Walmart decides to make a change or invest in something new you can be pretty sure their decision will have a wide ranging impact. ExxonMobil has the same kind of power. When ExxonMobil made the decision to invest a paltry $600 million in biofuels people took notice. The same thing is happening now that ExxonMobil has spent significantly more to become a major player in the natural gas industry.

How will this affect Congress? Natural gas prices are notoriously volatile and some of the lifelong politicians in Washington have a long memory as evidenced by this quote from Sen. George Voinovich (R-Ohio) in the New York Times article “Exxon-Xto Deal Forces Congress to Reconsider Natural Gas” illustrates, “We encouraged our electricity to go to natural gas; our gas prices went up to the top,” Voinovich said, leaning into the microphone to get his point across. “We lost millions of jobs in this country because of high natural gas costs. When we did that policy, we didn’t pay attention to the impact it would have on our economy.”

The price volatility that burned us in the past could become a thing of the past with ExxonMobil in the mix. ExxonMobil has discussed selling gas using long term contracts, as opposed to the traditional six month contracts currently used. This move alone could remove a great deal of the volatility involved with natural gas.

Moving on to the second question I would caution anyone from thinking this signals a greener, gentler and more environmentally friendly ExxonMobil. Oil is still going to be what pays the bills at ExxonMobil, just ask Vice President of Investor Relations David Rosenthal “It’s not a strategic shift. We are not shifting away from oil to gas.” There you have it.

Don’t expect a straight answer out of ExxonMobil or anyone else about the issue of peak oil. The verdict is still out for a number of reasons, not the least of which is it is really, really hard to figure out how much oil is spread out across the planet. Analysts will tell you that it is getting harder and harder for ExxonMobil and everyone else to find the easy oil. Natural gas on the other hand has never been easier to access, although there are also questions about whether we have reached peak gas.

As for ol’ T. Boone and his Pickens Plan it seemed like a great idea when gas cost $4 a gallon and the economy hadn’t completely tanked. Today you don’t hear much about Mr. Pickens. You can bet that ExxonMobil will want to sell their natural gas one way or the other, but the idea they would push to use natural gas as an alternative fuel for traditional transportation is farfetched at best.

These are just a few of the questions that have arisen out of ExxonMobil’s big move. Any time ExxonMobil steps out of their traditional role as an oil supermajor you have to take notice and wonder how it will affect the bigger picture. For now we will have to wait and see along with everyone else.

Sources:

New York Times Article

Fortune

Houston Chronicle

Fort Worth Business Press

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