Earlier this week, ExxonMobil, the largest oil traded in the world and gas producer, announced it had agreed to buy XTO Energy, the second largest producer of natural gas resources in the U.S.. XTO to acquire ExxonMobil shares worth 31 billion U.S. dollars, which makes energy supply more important in four years.
This acquisition (and more like it) will have very significant impacts in at least three areas: energy prices, advances in energy innovation, and climate change legislation.
1. The impact on energy prices
For the acquisition the second largest natural gas producer in the U.S., ExxonMobil will increase its ability to influence gas prices.
Natural gas prices in long-term contracts are now quite close to oil prices when measured in cost per BTU basis. But natural gas prices in the spot market are much lower – often up to 400% lower – prices of oil. The more gas that remains available in the spot market, it is likely that prices under contracts long term will come down.
When independent companies like XTO gas sales in the spot market, there is pressure on natural gas prices to go down. What makes the gas as an alternative to oil and coal. Ultimately puts pressure on oil prices and coal.
ExxonMobil and other major oil companies that buy natural gas companies could influence prices simply sell less gas in the spot market. Large companies oil companies have plenty of cash, so they could keep their gas inventories until the gap between gas and oil are close. That's not good for Consumers … or the country.
2. The impact on innovation
Over the last decade, a handful of small energy companies nation huge amounts of gas found in new areas stretching from Texas to Pennsylvania. XTO was one of these companies. It grew almost unnoticed in the nation's second largest gas producer by accumulating a large portfolio of fields and the development of expertise in the complex technology needed to extract the gas from shale beds.
If oil companies buy these small innovative companies that are making all new discoveries, then who carry out the new natural gas technologies in the future?
Good question.
3. The Impact on Climate Change Legislation
Oil is one of the major contributors to carbon emissions worldwide. Gas is a much cleaner fuel.
The oil industry and their trade organization, the American Petroleum Institute, who vehemently opposed any aspect of climate change legislation that would raise the price of petroleum products. In contrast, the natural gas industry has supported many aspects of climate change legislation. Since the natural gas carbon is relatively low, the restrictions on carbon emissions will give a competitive advantage over oil and coal.
If the main oil companies buy all the major gas companies, then that will advocate for climate change legislation?
Another good question.
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