Tuesday, June 30, 2009

Exxon's Weapons of Gas Destruction?

Friday's Wall Street Journal "Heard on the Street" section had a provocatively titled article, "Exxon Mobil's Weapons of Gas Destruction" about how the lumbering giant is scheduled to start up three new LNG projects in Quatar. The article notes that the world market is currently oversupplied for current demand and that the development of most of the LNG capacity was begun under very different circumstances. It notes that much of the excess LNG likely will end up on U.S. shores if not purchased by Asia and Europe. The article didn't specifically describe the Kuwaiti projects, so it's not possible to know from the article if the "start up" of three projects means that they are opening after construction or they are moving from the design to construction phase. In any case, it would strike fear in the heart of anyone interested in domestic gas production.

At the end of the article, the author wonders why a cash rich giant like Exxon hasn't purchased a few of the gas rich but cash poor independents sitting on lots of gas resources. He implies that flooding the U.S. market with LNG will continue to drive the price of natgas down and make for better pickin' in terms of M&A. I wouldn't put this beyond a monolithic corporation like Exxon, but I doubt they are that smart.

I've been reading Robert A. Hefner, III's book The Grand Energy Transition (I'm reading the self published version available at the-get.com; at the end of the summer it will be available through the publisher Wiley and hopefully be better edited). The book explains Mr. Hefner's theory that society needs to transition away from solid and liquid fuels to gas-based fuels. It is also something of a memoir of a successful life spent in the natural gas industry. Mr. Hefner notes several instances of how Exxon made very public and very erroneous statements over the past 30 plus years about the worldwide decline of natural gas supplies. Exxon has been proven dead wrong on each occasion.

I compare these stories to Exxon's current actions in the natural gas industry and wonder what Exxon really thinks about the gas market.

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