ExxonMobil: Green Company of the Year

Oil from algae? Just a sideshow, Exxon's real thrust into green energy is a big bet on natural gas.



Sea of green: In Qatar, Exxon is building the world's largest plants to make liquefied natural gas.

Christopher Helman, 08.05.09, 06:00 PM EDT Forbes Magazine dated August 24, 2009
Oil from algae? Just a sideshow, Exxon's real thrust into green energy is a big bet on natural gas.
Sea of green: In Qatar, Exxon is building the world's largest plants to make liquefied natural gas.
There are two ways for a big oil company to go green. There is the political approach and there is the engineer's approach.

Purely political: the grand announcement in July that ExxonMobil would put $600 million into algae farms that would turn sunlight into automotive fuel. It takes a leap of faith to think tanks of algae can compete with oil wells, even allowing for the advantage that biofuels would have in a world of carbon permits (or carbon taxes). But the algae project buys ExxonMobil some peace with environmentalists. Since taking the helm in 2006, ExxonMobil boss Rex W. Tillerson has worked hard to soften the company's stance on climate change; he is not as gruff and forceful as his predecessor Lee R. Raymond in dismissing global-warming alarmists.
The engineering solution to the matter of carbon in the atmosphere: Drill for natural gas. Per unit of energy delivered, methane releases 40% to 50% less carbon dioxide than coal and a quarter less than petroleum. Coal fuels half of U.S. power generation. Replacing all of it with methane would cut CO2 emissions by 1 billion tons a year. Could windmills come close to that in reducing greenhouse gases? Not easily. To get the same emissions reduction you would have to replace half of power plant coal with 80,000 giant turbines covering 400,000 acres of ground. "Natural gas is the answer to green-energy low-carbon concerns," says Neil Duffin, president of ExxonMobil's project development company.
ExxonMobil's bet on natural gas best comes into focus 7,900 miles away from its Irving, Tex. headquarters, in the Persian Gulf state of Qatar. There ExxonMobil is nearing completion of a $30 billion project to develop the world's biggest natural gas field. Four giant plants, the biggest of their kind, will chill the gas into liquefied natural gas for loading onto thermos-bottle tankers (also the biggest) and shipment to ports around the world.
The Qatar megaproject will by next year boost ExxonMobil's gas production 12% to 9.9 billion cubic feet a day, and vault the company into first place as the world's biggest natural gas producer not controlled by a government. Qatar volumes will help increase total oil and gas output roughly 5% to the energy equivalent of 4.3 million barrels of oil a day. The country will contribute an estimated 7% of ExxonMobil's pretax earnings (which were $55 billion in the last 12 months). All the big oil companies are drifting away from petroleum into natural gas, and for the same two reasons that Exxon is: Gas is cleaner-burning and still plentiful. With Qatar, Exxon has gotten ahead of its competition.
At the moment natural gas looks like a terrible business. The recession has led to a 10% drop this year in industrial demand. In the U.S. the price of gas has plunged to $3.50 per million British thermal units (more or less the same as 1,000 cubic feet), from a peak of $11 a year ago. This contributed to Exxon's 66% plunge in second-quarter earnings. A surge in supply could send prices even lower. New projects in such countries as Yemen, Russia and Indonesia are expected to push up volumes of liquefied natural gas 50% in the next two years. At that point LNG will account for 12% of global gas supply. Meanwhile, drillers are using innovative rock-cracking techniques in the tricky shale deposits of Texas, Pennsylvania and elsewhere; in five years they've found at least 500 trillion cubic feet of recoverable gas, roughly 20 years of U.S. demand.

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Interesting Times for Alaska

ANOTHER ITEM from the Globe and Mail interview with TransCanada CEO Hal Kvisle got lost in the smoke and steam resulting from Kvisle's comment that "nothing goes ahead until Exxon is happy with it."

Kvisle also suggested in an interview last Sunday with the Toronto-based newspaper that Denali and TransCanada are likely to join forces sometime in the next two years.

At least that is the apparent implication of his statement . . .

that it's unlikely more than one open season will be held in 2010. "This is not about TransCanada dreaming up the project we think will work," he said. "It's about the five key parties getting together and crafting something here." The five parties are apparently the three big producers, TransCanada and the state of Alaska.

Kvisle noted that plans at this point call for both Denali, the company formed by ConocoPhillips and BP to build a gas pipeline, and TransCanada to hold open seasons in 2010. The open season is when customers are solicited to ship their gas through a pipeline.

The Globe and Mail reporter said Kvisle told him it's unlikely two open seasons will be conducted. That makes sense, since TransCanada couldn't really compete with a line being built by the companies that control North Slope gas — nor could it woo the companies away from using their own pipeline.

But it would mean at least one of the two entities would either delay an open season — TransCanada is obligated by its contract with the state of Alaska to hold an open season in 2010 and Denali is ahead of TransCanada — or Kvisle expects both sides to join forces sometime in the next two years.

So unless natural gas prices go in the tank sometime soon, which doesn't seem likely, the next two years should be an interesting time in Alaska.

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The true economically viable option Denali Alaska Gas pipeline

2 Days after Alaska's incompetent Legislators pass AGIA

ENERGY- Alaska Goofs It Again

Exxon key to Alaska pipeline
DAVID EBNER

August 4, 2008

VANCOUVER -- TransCanada Corp. has won support from Alaska to build a $26-billion natural gas pipeline, but ground won't be broken until Exxon Mobil Corp. signs on, says TransCanada chief executive officer Hal Kvisle.

Calgary-based TransCanada, which secured Alaska's official backing Friday, is in competition with BP PLC and ConocoPhillips Co. to build a pipeline that would connect large untapped gas reserves on the north slope of the state to consumers in the continental United States.

But Exxon, the company that controls the most gas in Alaska, hasn't yet backed either of the competing proposals, though it has an active Alaska team monitoring the pipeline race.

"Nothing goes ahead until Exxon is happy with it," Mr. Kvisle said in an interview yesterday.

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For TransCanada to proceed, it will also need to attract the shipping business of rivals BP and Conoco, which control part of the natural gas.

"This is not about TransCanada dreaming up the project we think will work, it's about the five key parties getting together and crafting something here," Mr. Kvisle said.

That presents some big challenges. All of the companies would likely seek a longer-term deal with Alaska on such issues as taxes before deciding to make a long-term commitment to a pipeline.

Reaching such a deal could be an uphill battle because the relationship between the firms and Alaska is frayed after a previous pipeline proposal fell through two years ago. Further, while it looks like it's BP-Conoco versus TransCanada in Alaska, the relationships are much more tangled.

London-based BP is TransCanada's largest customer on its sprawling gas pipeline network, and Conoco, based in Houston, and TransCanada are partners on a major new oil sands pipeline.

In this foggy and seemingly fractured picture, Calgary-based TransCanada is positioning itself in the role of intermediary, hoping to own part of the pipeline while getting closely involved in its design and construction by pitching its pipeline expertise as an important card.

An ownership stake in any pipeline is something the producers want if they are to sign long-term contracts, Mr. Kvisle said.

But TransCanada also has the right, under federal Canadian legislation from the late 1970s, to build the Canadian portion of the line, the company says.

Mr. Kvisle said he thinks TransCanada can figure out a deal that will work for everyone and offer advantages such as savings amounting to several hundred million dollars with technology that eliminates the need for pressure-testing the pipeline.

Late Friday, the Alaska Senate approved a licence for TransCanada to start preliminary work with $500-million from the state - but also a long list of requirements to ensure that the line benefits Alaskans. The licence was issued under the Alaska Gasline Inducement Act, a process that Exxon, BP and Conoco rejected as unreasonable, and led BP and Conoco to independently propose a $30-billion pipeline called Denali.

TransCanada's new pipeline licence does not affect Denali, said Bud Fackrell, a BP executive who is now president of the venture, in an interview with Bloomberg News on Friday.

Mr. Fackrell added that an open season for contracts to ship gas on Denali will be conducted in 2010. It's the same year that TransCanada plans to do the same, as required by its licence, but Mr. Kvisle said it's unlikely two open seasons will be conducted.

While Alaska inches ahead, the proposed $16-billion Mackenzie Valley pipeline - whose lead backer is Exxon - in the Northwest Territories is much further along and is nearing the end of a long regulatory review.

Mr. Kvisle doesn't think the two ventures are in competition and said construction on Mackenzie could begin in 2010 while Alaska likely won't break ground before 2015.

And in Alaska, Exxon remains the deciding factor.

"Things aren't always as they seem," Mr. Kvisle said. "Exxon is not the front-and-centre party in the press but I know for a fact that they've got very hard work going." Rean More