ExxonMobil Sees Gas in Cost, Technology Race

Supplying the growing demand for natural gas in the future will be a foot race between the costs of producing it and the constantly changing technology to market it. Marketers also have to leap two important hurdles --- regulations and taxes --- before crossing the finish line. Still, it's a race with a lot of winners, says Stuart McGill.

McGill should know. As president of ExxonMobil Gas Marketing, the world's largest nongovernmental gas marketer, McGill oversees gas and liquid natural gas sales in 25 countries. Speaking Tuesday at the GasTech 2000 conference in Houston, McGill said that energy would be at the "heart of economic development" in the future, with natural gas leading the way.

"Demand for natural gas is growing in all regions," he told the international delegates. "Free markets demand flexibility, and natural gas provides more flexibility than other fuels" in how it is marketed and in the types of products available. However, McGill noted that even though the future looks bright, "we have to find enough" of it.

"It's a race between increasing costs and technology. So far, technology has prevailed, and technology continues to be the future of our industry," he said.

Because large field discoveries have steadily dropped since the early 1960s, the discoveries of smaller fields are all the more important, and the pace to develop them has to be maintained. But there are obstacles not related to technology that also are deterring growth. McGill said that taxes and regulation would be the two "most important determinants" for the natural gas industry in the future.

The "government take," he said, referring to taxes, "is a big slice of the delivered price. Some attention to taxes is in order. If the government sees natural gas as the future, it will have to lighten the tax burden."

Regulations are playing more havoc with marketers today than ever before because they are in a state of flux, said McGill. "Whatever the deregulated market turns out to be, there should be less regulation, not more," he said, referring to recent calls for more guidelines. "The only good thing about the U.S. regulatory market today is that it's better than it used to be. It's just not a single one-size-fits-all system. It can't be."

Laying out several principles for regulation in the future, McGill said that while rules are a "necessary evil," the government has to "rely on markets and capitalism to protect the people." For the meanwhile, the cost of bringing gas to market "likely will increase."

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