Wednesday, August 12, 2009

Forbes: Exxon, Gas and Green

This week's Forbes magazine features ExxonMobil as the "Green Company of the Year." It's kind of an ironic award since Forbes spares little ink poo-pooing the environmental movement (see this week's editor's commentary - the gist of which (provide incentives for electricity producers to use natural gas) I agree with).

In any case, the article is interesting and it shows that natural gas is finally getting the right kind of national press. The article's conclusion: using natural gas rather than coal for electrical generation is the fastest, cheapest and most effective way to lower our carbon footprint.

Even more interesting, perhaps, is the history and economics of Exxon's huge gas field and LNG operation in Qatar. Exxon has invested $30 billion in developing the North Field in Qatar, which contains 900 Tcf of gas, and four gigantic gas liquefaction plants. The economics are shockingly good because while liquefaction is expensive, the gas is not that expensive to produce and the gas is "wet" and therefore provides billions of dollars worth of propane and butane that subsidize the gas. The net result is that Exxon can put out 1.6 Tcf per year of LNG and have the pricing power to be able to undercut anyone anywhere on the planet. One shipment of Qatari LNG on one of Exxon's specially designed gigantic tankers equals one twelfth of the U.S. daily supply of gas.

I've been critical of Exxon's long history of dismissing natural gas, but the company is a savvy political and business player. They have no love of natural gas (or the environment), but they see oil as a limited resource (company oil production is down 12% over the past three years) and an opportunity in natural gas. When a company as smart and strong as Exxon sees the opportunity, they line up the ball, pour billions of dollars behind it and hit it right down the middle of the fairway. Putting it another way, Exxon might be the last one to board the boat but there is little doubt the company is going to take the captain's wheel once they do board.

I'll have more to say later this week about LNG, but this is a good, quick primer on the subject.

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