Comments: Betting on Gas

Abstract

Editor's column ExxonMobil’s purchase of XTO Energy last month—one of the largest merger and acquisition deals this decade—is another sign that future prospects for gas appear brighter than ever. The supermajor’s buyout of a leading developer of unconventional gas resources in North America gives it a major foothold in what has become the hot E&P play of the moment. In a panel session at last month’s International Petroleum Technology Conference (IPTC) in Doha, Thomas Walters, president of ExxonMobil Gas and Power Marketing, laid out his company’s view of the future of gas, a week before the XTO deal was announced. Gas demand will see strong growth over the next 20 years and resource holders must find new ways of developing supplies to meet this demand, he said. Presenting information from ExxonMobil’s 2009 Energy Outlook, Walters said that fossil fuels would continue to be the main energy source for decades and that gas demand would grow faster than demand for other hydrocarbons. Global demand for natural gas will challenge the industry to deliver, from developing unconventionals such as shale to massive liquefied-natural-gas (LNG) projects, such as those that have been built in Qatar, panelists said during the IPTC session. Gas, in particular, will play an important role in the future energy mix because of its abundance, smaller environmental impact, and its desirability as a fuel for power generation. Since its founding in the mid-1980s, XTO has grown by acquiring mature assets and expanding reserves through technology know-how. It owns large interests in major US shale, tight gas, and coalbed methane plays, and has reserves estimated at 45 Tcf of gas equivalent. ExxonMobil said it plans to create an upstream organization to manage global unconventional resources. Other companies are betting on a bright future for unconventionals as well. BP, Statoil, and Eni all have bought significant shale gas assets in the US in the past year. And Devon Energy announced in November that it was selling all of its Gulf of Mexico and non-North American E&P assets to focus on US and Canadian onshore. Devon holds key stakes in several of the largest US shale plays. Although projects in North America have drawn the most attention, other regions have begun estimating the huge potential of unconventional resources. Poland has attracted the interest of Marathon and ConocoPhillips for potential shale development. Saudi Arabia is also eyeing tight gas and shale projects, Abdulla Al-Naim, vice president of Exploration with Saudi Aramco, said during IPTC. He predicted that the exploration staff of the future would be focused on unconventionals. The rise of gas as a future fuel source continues to boost the prospects of a global gas producers’ association similar to OPEC. The 11 member countries of the Gas Exporting Countries Forum met in Doha during the week of IPTC to discuss strategy. Although gas has had limited scope as a global commodity, the growth of LNG has contributed to gas becoming a more fungible and less regional commodity.