Exxon's Latest Quarter Signals A Turn to Natural Gas - BusinessWeek

Exxon's Latest Quarter Signals A Turn to Natural Gas

Posted by: Steve LeVine on October 29

Today’s message from Exxon: Think, value, embrace natural gas.

The world’s largest publicly traded oil company reported its third-quarter earnings today, and — apart from its missed profit numbers — natural gas is the most significant story.

It’s been clear for a year or more that Exxon — along with most of Big Oil — is becoming more of a natural gas-led company than a dominant oil play. That’s significant because generally oil earns a lot more money by volume than natural gas. But since accessible conventional oil is in shorter and shorter supply — at least at economical-to-produce costs — Big Oil is making a virtue of the necessity of turning to natural gas for replenishing its reserve base.

So it is that in Exxon's latest report, almost the only good news is that production was up by 3% compared with the same period in 2008. Look at the report, and you see that almost all this increase is from the company's newly producing natural gas fields in Qatar -- Qatargas 2 and Ras Laffan 3. These are liquid natural gas plays whose volumes are meant primarily for Asia.

Looking at the future, the message is the same -- a focus on gas, specifically the same two Qatari fields, plus Gorgon, an Australian joint venture LNG deal with Chevron and Shell. Such projects make Exxon "well-positioned for continued production growth," the company said in a statement.

On the plus side, Exxon argues that the natural gas fields will suffer much less of the long-term production decline that erodes the value of most oil and natural gas fields. So they will hold their value much longer without as much expensive maintenance.

In addition, natural gas emits about half the carbon as oil, so it would more easily satisfy any carbon-reduction mandates to come in legislation in Washington or a globally negotiated climate-change agreement.

Still, apart from its Canadian oil sands, Exxon's growth story for the last three or so years has been one-dimensional -- that of its enormous volumes of natural gas in Qatar and now Australia.

Big Oil usually argues against reliance on any single country or field. But times have changed. Chevron -- whose third-quarter figures come out tomorrow -- is dependent on Kazakhstan, for instance, for much of its oil volumes. BP relies to a large degree on Russia and Azerbaijan.

For Exxon, the story is natural gas.