Exxon Mobil’s $41bn deal to acquire XTO Energy, the US natural gas producer, is the biggest energy deal of the year. It provides a decisive answer the question of whether Exxon needed a big strategic move to sustain its growth.
For Exxon, long the most sceptical of all big oil companies about climate change, the deal marks something of a U-turn. For just as last week’s round of bidding for Iraqi oilfields showed companies betting against a decisive outcome in the climate talks at Copenhagen, Exxon’s move for XTO is in part a play on the likelihood that that the US will make further moves to curb greenhouse gases.
It is not that Exxon is suddenly going all touchy-feely on us. Its decision-making is still as hard-headed as ever. The investment in research into biofuels from algae, for example, is a cautious long-term bet, in spite of all the glossy TV campaigns.
That’s the Financial Times reporting, headlined “Exxon’s $41bn XTO deal: a bet that Copenhagen climate talks will succeed.”
Who knew that the oil giant reads Climate Progress — see Game Changer, Part 1: There appears to be a lot more natural gas than previously thought and Part 2: Unconventional gas makes the 2020 Waxman-Markey target so damn easy and cheap to meet?
Here’s more on the deal:
Getting XTO gives Exxon a powerful position in US “unconventional” gas, including shale gas, where it has not been one of the leaders in the revolution that has opened up the huge new source of US gas supplies. With many of the resource-rich countries around the world still making life difficult for foreign investors (viz Exxon’s travails in Russia and Venezuela), resources in a stable developed country are attractive, and in Exxon’s own back yard particularly so.
In addition to those attractions, however, an important part of the case for buying gas assets in the US today is the prospect that energy and climate change legislation will tilt the balance of the energy mix away from coal and towards gas for power generation.
The gas industry has been slow to make its case compared to the smart and well-resourced coal lobby, but it is beginning to get its act together. Gas generates about half the carbon dioxide emissions of coal per kilowatt hour produced, and if America wants to cut its carbon dioxide emissions, then switching away from coal – which today provides half its power – to gas is one of the cheapest and easiest ways to do it.
Everyone seems to be jumping on the gas/climate bandwagon:
Lamar McKay, American president of BP, which was the country’s biggest gas producer, picked up the argument in a speech at an FT conference in September.Now, in Copenhagen, Aubrey McClendon of Chesapeake Energy, another big US gas producer, has come to make the case at the world climate talks. His visit here was put on by the American Clean Skies Foundation, a think-tank backed by Chesapeake that makes the case for increased use of gas. Its event in Copenhagen was co-hosted with the Worldwatch Institute, the environmental group.
These are the people with whom Exxon will now be making common cause. It will be strongly in Exxon’s interest to see fuel switching from coal to gas, and one of the most certain ways for that to happen will be a strong agreement in Copenhagen that persuades the US Senate to pass energy legislation that includes an emissions cap-and-trade plan.
Environmentalists might just have found their most unlikely ally yet.
Well, not quite — see Anti-science groups funded by ExxonMobil hype email story and Another ExxonMobil deceit: They are still funding climate science disinformers despite public pledge.
But natural gas is a game changer (Part 7), A Bridge Fuel for the 21st Century.
E&E News (subs. req’d) reports this morning:
Rep. Ed Markey (D-Mass.) plans to convene hearings early next year about a proposed Exxon Mobil Corp. purchase of a large independent natural gas company, a move that could boost investment in unconventional natural gas resources across the country….
“This transaction shows that natural gas — with its comparatively lower carbon content — is a bridge fuel to America’s low-carbon future, since it will play an increasing role in the coming years,” Markey said in a statement. “However, this proposed merger also raises a number of issues with respect to the future direction of the U.S. domestic oil and gas industry, competition within the industry and the potential environmental impact of increased unconventional natural gas development.”
Certainly we must develop gas resources in an environmentally responsible manner, something ExxonMobil is not known for.
Related Posts:
- Game changer 6: Will shale gas save the climate bill?
- 5: RFK, Jr. on “How to end America’s deadly coal addiction … practically overnight” thanks to “a revolution in natural gas production”
- 4: Tim Wirth delivers must-read “extreme words” to natural gas execs: “You don’t have the right to sit back and do nothing” about climate change. “We are in very deep trouble, the edge of catastrophe, and you can help.”
- 3: Unconventional gas — great for low-cost climate action.
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Pelosi says natural gas is not a fossil fuel. Good move for Exxon. Natural gas liquids go into gasolene and other products. Most people don’t realize how many products come from natural gas including fertilizer.
It is unrealistic to expect any profit oriented corporation, such as Exxon, to be overly concerned about global warming. Their first interest is to maximize their long-term profits. We need to force them to think seriously about their contribution to GW by setting the right laws.
We need to set national and international laws that increase substantially the cost of fossil fuels to the users. The most effective, manageable, and also easy to verify, is tax on fossil fuels, not cap and trade.
With these laws even Exxon will have to pay close attention to the urgent global need to cut GHG.
Private decisions to allocate large chunks of capital to a particular technology or fuel source have a significant impact on the direction of energy development and the trajectory of carbon emissions. This is a big vote of confidence in shale gas, as well as an acceptance of the inevitability of carbon controls. At the University of Mass.-Boston, we are part of a big international project on corporate climate strategies – see http://climateinc…./unleashing-exxon/ for more details.
Joe – I bought stock in XTO after reading your “Game Changer” series on shale gas. Now Exxon’s given that a 15% boost. Thanks for the tip
Joe, This is late in the year but just in case I would like to share with you a blog about hydro-fracking
(shale drilling) for natural gas in upstate NY where local citizens say it impacts the environment disastrously
(drinking water, for starters). It was also discussed as an agenda item by Democracy for NYC(in NYC, of course). Am asking Meg for the website address and will return with it when I hear back– but for now,
here’s an example of a letter to the Governor of NY State which explains why they’re upset:
http://www.toxicstargeting.com/ MarcellusShale/ coalition_letter
Here’s the blog Joe, from a friend of mine in Liberty, NY:
http://sustaintheworld.com/