ExxonMobil Corp. CEO Rex Tillerson gave a New York City audience a glimpse of natural gas producers’ empty pockets during an exchange about gas prices following a speech he gave to the Council on Foreign Relations last Wednesday.

Tillerson said he agrees with the assertion that cheap natural gas can help rebuild the American economy, just not gas as cheap as it is today.

“…[C]heap is in the eye of the beholder…It will be supplied at whatever its cost to supply will be. And what I can tell you is the cost to supply is not $2.50,” he said. “We are all losing our shirts today. You know, we’re making no money. It’s all in the red. And so right now we’re enjoying the overhang…the system is so enormous, the price supply-demand signals are always slightly out of sync.”

Today’s low natural gas prices are due to the fact that the industry “overshot when we had those $6, $7, $8, $9 prices, and we overdeveloped the supply…” In some cases, producers are “getting by on cash,” Tillerson said. “I can tell you it’s negative earnings, by and large, and some people — or it’s negative on cash for them, depending on how efficient they may be. So today’s price is not sustainable to deliver that [U.S.] energy security.”

What, exactly, the right price to ensure stability of supply and producer viability is, Tillerson didn’t say. “…[T]he market will seek it and it will find it,” he said. “It’s not $9, I can tell you that…[I]f you’re thinking about what others are paying for natural gas and those that are importing LNG, liquefied natural gas, it will be substantially below the cost of that to maintain a secure supply.”

Natural gas will be “enormously important” in the United States and to the world, Tillerson said. “And that’s for a number of reasons: its abundance, its affordability, its functionality. And natural gas, we expect, over the next 25-30 years…the world’s demand for natural gas is going to increase about 60%. It’s going to be the fastest-growing energy source in the world, and at that time it will satisfy more than 25% of total global energy demand.

“[The] United States, given the seasonality of the year, at any time is either the world’s largest natural gas producer or the second-largest natural gas producer. We go back and forth with Russia. So to say the U.S. is energy poor is simply not accurate. And to say we don’t have the capacity to pursue and achieve energy security is also not accurate.”

The fastest-growing demand sector for energy is electric power generation, Tillerson said. At home, much of the shifting fuel demand for power generation comes from fuel-switching, particularly between gas and coal, he said, “but globally, electricity is what is growing the fastest. Large, large portions of global population still are not served with electricity. Electricity underpins their quality of life, but it underpins economic growth: industrial activities, manufacturing…[D]emand for electricity is why natural gas is going to grow so rapidly.”

With natural gas prices in the basement, producers shouldn’t count on a market rescue from the natural gas vehicles (NGV) sector, Tillerson said. Fleet conversions to natural gas make sense, but there are a number of hurdles. “When we look at the economics around that, and the likelihood of a broad-based infrastructure to serve the fuel disposition needs, we think it’s highly unlikely that it ever becomes material,” Tillerson said.

Fleet operators such as United Parcel Service and AT&T can afford to develop NGV infrastructure to serve their fleets because trucks return to the same place every night at the end of their rounds, Tillerson said. NGVs running on compressed natural gas (CNG) make sense for this sort of fleet operators.

However, long-haul trucking dependent upon LNG is more difficult. “I think overcoming the infrastructure cost and the buildout, overcoming the conversion costs put it pretty unlikely to me that it becomes material as an alternative transportation fuel,” he said.

Tillerson was also asked about the viability of electric vehicles whose batteries are recharged with electricity generated by burning natural gas. However, he said the issue with electric vehicles isn’t so much the source of the electricity, although a “well-to-wheels” analysis of emissions is in order in the case of carbon-reduction efforts.

“The bigger issue with the electric vehicle is with the vehicle itself still,” he said. “The technology simply has not advanced sufficiently to make those vehicles attractive for most individuals. So large-scale deployment to passenger use — we think, it’s going to be — continue to be pretty slow, and it has to do with the battery technologies.”

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