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Let Markets, Not Policymakers, Guide Energy Exports, Says ExxonMobil

ExxonMobil Corp. executives on Thursday called on U.S. officials to lift restrictions to export domestic oil and to continue approving applications to export liquefied natural gas (LNG).

The oil major has advocated for free market expansion to allow LNG exports from North America, and this year executives have become more vocal (see Daily GPI, Sept. 26). ExxonMobil owns stakes in proposed LNG export facilities in Texas and Alaska and is considering one for British Columbia. As well, its petrochemical facilities fuel substantial growth along the Gulf Coast.

During a discussion Thursday of the producer's annual "Outlook for Energy: A View to 2040," top executives continued to make their case (see Daily GPI, Dec. 12).

"We believe that free trade is good," said corporate strategy chief Bill Colton. "I say this, and it's a simple thing to say, but it gets lost in the discussion…Adam Smith explained the economics of trade over 200 years ago, which is that both importing countries and exporting countries win. It's the ultimate win-win.

"At the same time, even back then, it was clear that whenever you try to expand trade, there's always the protectionists' views that come out…It's so predictable; you should always expect that…But most countries get past that and understand that it's all part of economic competitiveness.

"It's like any other economic issue. You have the rule of law. You have the right principles, you're going to get maximum economic output."

There's "no question" that expanding crude oil and gas trading would be good for the economy, he said. "I think it would be a surprise for anybody to show that more trade is not good."

ExxonMobil has a team of 10 economists and researchers who compile the annual forecasts, including a "very high level study of supply/demand," said Colton. The U.S. Department of Energy (DOE) "has talked about a 6 Bcf/d and a 12 Bcf/d case" for LNG exports from the United States. Including Canada's proposed gas exports, makes the forecast much higher.

"It's the power of markets" that helped create abundant natural gas stores in North America and which are helping to build huge amounts of natural gas liquids and oil, said Ken Cohen, who heads public and government affairs. "The incentive was there for the independent producers to go take the risk and produce and prove up the technology.

It wasn't government policy. It was the power of markets and risking capital."

Free markets should continue to be used as the basis for natural gas exports, he said.

"I find it interesting that there are some in Washington in policymaking roles who talk about finding the so-called 'sweet spot' where everyone is happy" in terms of exports. "We're not that smart. Policymakers aren't that smart. Markets are…over time.

"It's the ruthless power of markets will determine what the spot is. But not policy."

Healthy markets "should have imports and exports on an ongoing basis," said Colton. ExxonMobil isn't making the case that the United States not continue to import gas on some level.

"You can have, for instance, some imports coming into the East Coast and exports from the Gulf Coast and they can net to zero. But you still have lots of trade," said Colton. "And you see that today. The U.S. is exporting products…and that's a very healthy market.

"What you want to have is no constraints on trade, which will optimize economics for the U.S.," he said. "We would like to hope that even in the year 2040 that we would have a very robust trade of both crude and natural gas products, imports and exports, whatever the net number is, because that's what going to make the most sense for the U.S. economy."

The executives were asked as to when ExxonMobil might become a significant gas exporter.

"The answer to that question isn't in this room, it's over at the Department of Energy," said Cohen. "We are ready to go."

ExxonMobil economists expect LNG volumes to triple by 2040, with many regions becoming suppliers, including the United States. Most of the demand would be in Asia Pacific.

"Trade has always been important as the location of resources has always been different than the location of the demand," said Colton. "It's very important that oil and gas trade freely across international markets. Our outlook is that trade will become even more important in the future."

North America is expected to shift from being a big oil and gas importer to a "fairly balanced position by 2030 as production grows significantly," he said.

"Even more so than for oil, international trade of gas will become increasingly important as trading is expected to be two and a half times higher by 2040...and most of this will be LNG."

If all goes to plan and free markets rule the day, North America would shift from being a net importer to a net exporter by 2020 as production gains outpace demand. European gas imports are expected to increase by about 60%. Russia/Caspian continues to be a significant exporter, with flows likely to grow by 170%. The Middle East and Africa will continue to be exporters. "We see Asia Pacific will become much more dependent on imports, which are likely to grow by about 500%," Colton said.

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