December 20, 2009 in Business

Exxon Mobil deal places big bet on natural gas

Ronald D. White Los Angeles Times
 

Exxon Mobil’s purchase of a Texas natural gas producer for $29 billion could reshape the U.S. energy landscape, setting the stage for the fuel to challenge coal in the nation’s electrical grid and helping to alleviate American dependence on foreign oil.

The wager by the nation’s largest oil company positions Exxon Mobil to thrive in a world in which petroleum, its key product, is getting tougher to come by.

The deal is a “game-changer” that could shift the U.S. energy mix while reducing carbon emissions, said oil expert Daniel Yergin, author of “The Prize: The Epic Quest for Oil, Money and Power.”

Natural gas burns cleaner than oil or coal and is expected to be in particular demand as restrictions are tightened on the release of greenhouse gases.

Exxon will pay $29 billion in stock for Fort Worth-based XTO Energy. Exxon also will assume $10 billion of XTO’s debt.

Exxon becomes an instant leader in the extraction of natural gas from shale, a process that has opened the U.S. to a new gold rush of potential fuel. Other energy companies are also positioning themselves to expand their natural gas businesses, as the fuel is used to generate electricity and power buses and trains.

As many as 175,000 industry jobs could be created over the next 10 years, said John Felmy, chief economist for the American Petroleum Institute.

Key, he said, are the improved technologies that allow the fuel to be extracted from shale. This makes natural gas so abundant that it can inexpensively replace fuel that is purchased overseas.

Analysts said Exxon’s purchase of XTO was a sign that the giant oil company was betting on a much larger role for natural gas in the U.S. energy future.

Natural gas probably will be used more to power the electrical grid. Bus fleets and truck fleets figure to be the first expanded use for medium- to short-range transportation. A big increase in natural gas-powered personal vehicles might be further down the road, said Phil Weiss, an oil analyst for Argus Research.


There is one comment on this story. Click here to view comment >>

Get stories like this in a free daily email