Exxon Mobil (NYSE:XOM) estimates that the development of shale, and other unconventional resource plays by the energy industry, will continue over the next few decades and will account for 30% of global natural gas production by 2040.
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The Outlook for Energy
Exxon Mobil publishes "The Outlook For Energy" at the end of each calendar year and uses this report to outline the company's long term view on energy supply and demand. The company also expanded the report's time horizon to 2040, for the first time. (For related reading, see Peak Oil: What To Do When The Wells Run Dry.)
Natural Gas Supply
Shale and other unconventional formations currently provide 10% of global natural gas production and Exxon Mobil expects this share to triple and reach 30%, by 2040. This production trend began in the United States more than 10 years ago, when Mitchell Energy & Development Corp first applied horizontal drilling and hydraulic fracturing to produce from the Barnett Shale in Texas.
Mitchell Energy & Development Corp was purchased by Devon Energy (NYSE:DVN) in 2001 and the techniques have since been applied to many other formations in North America. Over the next decade, this technology is expected to be used to produce from oil and gas formations outside North America, including Poland and Argentina.
The share of natural gas in the entire energy mix will also grow quickly, increasing at an annual rate of 1.6%, through 2040. This growth rate will lead to natural gas displacing coal by 2025, as the second most popular fuel after oil.
Natural Gas Liquids
Exxon Mobil is also looking for an increase in the supply of natural gas liquids, as many shale and other unconventional formations produce these hydrocarbons along with the natural gas stream.
This explosion in natural gas production in the North America and elsewhere will lead to an increase in Liquefied Natural Gas (LNG) exports by 2040. Exxon Mobil estimates that LNG will supply 15% of all global natural gas demand within thirty years. (For related reading, see Natural Gas Industry: An Investment Guide.)
These trends are part of the reason why some operators are diversifying into natural gas through acquisitions or joint ventures in the United States. BHP Billiton (NYSE:BHP) recently closed on the purchase of Petrohawk Energy in a deal with an enterprise value of $15.1 billion. The company picked up 3.4 Tcfe of proved reserves in the deal and the potential for more, through Petrohawk Energy's undeveloped acreage across the United States.
Other companies are entering joint ventures with more established operators. In Aug., 2011, Noble Energy (NYSE:NBL) signed a multi-billion dollar deal with CONSOL Energy (NYSE:CNX) to jointly develop Marcellus Shale acreage.
The Bottom Line
Exxon Mobil was late to the shale gas party, but is now a firm believer in the future of this commodity. The company looks for natural gas to rapidly increase its share of the overall energy mix over the next thirty years.
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At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.
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