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Gas Investment a Must, Say Energy Executives

A greenhouse gas (GHG) emission policy eventually will be enacted in the United States, and combined with efforts to combat emissions around the world, natural gas is a "clear winner," the president of ExxonMobil Gas & Power Marketing Co. said last week.

Tom Walters shared a stage with other industry leaders as part of IHS Cambridge Energy Research Associates' (CERA) CERAWeek 2010 in Houston. When carbon costs are considered, natural gas becomes the most economical solution for power plants, he told a standing room only crowd.

Despite the economic downturn and the oversupplied gas markets, Walters urged the audience to believe that the long-term outlook for gas is positive.

"We expect global energy demand to increase nearly 30% in the next 20 years. By 2030 global gas demand will be around 140 Bcf/d higher than in 2009," said the ExxonMobil executive.

Power generation is forecast to drive gas demand and account for more than half of the gas demand growth over the next 20 years, according to ExxonMobil analysts. Walters said the expected growth will come because of the environmental benefits of the fuel.

"Natural gas is a cleaner burning source of fuel and power generation that over the next 20 years will continue to form an increasingly important role in the global energy mix," he said. "This can be attributed to its advantages of lower carbon emissions and greater flexibility into power generation."

However, Walters cautioned that the future success of growing gas demand will depend on public policies that promote and support it.

"To stimulate new investments at the lowest cost to society, we need reliable, open markets and investment frameworks that consider and allow unbiased use of all economic alternatives to reduce CO2 [carbon dioxide] emissions. This means avoiding mandates that prevent use of the most economic options or unfairly disadvantage an otherwise economic energy resource.

"It also means letting free markets work through stable and sensible policies and allowing natural gas to compete on a truly level playing field," said Walters.

ExxonMobil will continue its quest to acquire more gas-heavy assets around the world, he said (see related story). Last December the super major agreed to acquire independent gas producer XTO Energy Inc. for $31 billion, a transaction expected to close by the end of June.

"Gas has a brilliant future and it is expected to grow very much," said Philippe Boisseau, president of Total SA's Gas & Power division. In the short term, "we have an oversupply from shale production and from LNG [liquefied natural gas] plants," and a "reduction in demand."

However, the growth in global LNG markets -- especially in Asia -- eventually will stabilize the gas market, said Boisseau.

"Three years ago there were only three LNG terminals in China, and now we are speaking of 13," he said. "It doesn't take long to build a terminal. Our guess is that terminals will even go to a much higher number, leading to higher demand for gas in China."

China's thirst for gas, he explained, is based on a new pricing policy to be implemented by the government to promote natural gas as a clean fuel. The policy would reflect the increased cost of imported gas -- LNG and pipe -- and ensure the development of more challenging domestic fields.

"Gradually the government [of China] is pushing the price [of gas] up," he said. "China is getting slowly prepared to adapt to an economy to consuming even more of high value international LNG for their growth."

Total, which is based in Paris, "came to the conclusion that we have a 2020 situation that looks more or less balanced, taking into account the very significant part of unconventional gas in the United States," said Boisseau.

But "North America will remain a small importer of LNG all along the decade."

Boisseau urged the CERAWeek audience to "not stop investing, despite the gas bubble. That's why we are pushing for more gas production...this is the reason we signed a joint venture with Chesapeake [Energy Corp.] in the United States" to acquire a stake in the Barnett Shale (see NGI, Jan. 11). "It's why a lot of oil majors are giving a lot of importance to gas."

In the global gas markets, "a lot of balancing needs to take place," said ExxonMobil's Walters. "We need to start with energy use, and balance that against protecting the environment and improving the economies of all the world. It's a difficult balance to achieve. The only way to get there, to truly look to the long term, is to level the playing field."

Ten years ago, Walters noted, the industry was all about the future of deepwater natural gas; then attention was turned to the growth in LNG, and it now is all about unconventional gas.

"Our industry was allowed to push these efforts forward in an unconstrained matter. A lot of thought needs to go into the policies around the world," he said.

"A marvel to me is how fast things change in our industry and they change on a big scale. We need to understand that our view of the world today is probably going to change, so we need to go after the high-quality resources, and the resources that you can develop at the lowest possible cost. That's how you will win the game eventually."

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