Exxon Mobil knows more about the future of energy policy than Congress does

In the weeks before President Barack Obama took his oath of office, Exxon Mobil CEO Rex Tillerson determined to get a march on the new, less greenhouse-gas-emitter-friendly world that he and almost everyone else believed was coming, in the form of some sort of carbon-trading system. Tillerson was so certain of facing this new set of circumstances that he went to Washington to push publicly for something that Exxon opposed constitutionally: A straightforward tax on carbon.

As we all know now, the political sausage machine on Capitol Hill chewed up cap and trade, and the conventional wisdom now is that if such a system ever does materialize, it may be decade or more down the road. So it’s surprising to find that Tillerson’s lobbying wasn’t just a matter of short term political triage — he actually believes this stuff.

Exxon appears truly to believe that lawmakers are bound eventually to regulate carbon dioxide emissions through what Democrats call a price and Republicans call a tax. That belief underlies Exxon’s huge, bet-the-company play on natural gas, according to the New York Times’ Clifford Krauss. Exxon is in a partnership with Qatar on the world’s largest liquefied natural gas plant, and in December bought XTO, a shale-gas behemoth.

Krauss writes of a chat with William Colton, Exxon’s vice president for corporate strategic planning, who explains the big picture in Exxon’s thinking. (Some background: This blog has written about Exxon’s credibility problems with Wall Street, which has pummeled the company’s shares since its XTO acquisition, though the price has been slowly climbing back since a July low.) The big reason is low natural gas prices. But gas prices, and Wall Street’s reaction, haven’t made Exxon flinch. In fact, as we learned last week, Exxon has doubled-down on its gas bet with the purchase of Ellora Energy, which among other assets owns leases in Oklahoma’s Haynesville shale gas play.

This blog is also contrarian on gas — O&G has written repeatedly that China, for one, is bound to turn hugely to natural gas in the coming decades, mainly for political reasons (the Communist Party is disinclined to be drawn and quartered by an increasingly restive populace unhappy with coal-fired pollution). Gas prices will come back, and validate players like Exxon.

That is precisely where Exxon sees the rubber hitting the road on natural gas. Exxon’s guess is that “at some point, various governments are going to adopt some kind of cost of carbon,” Colton tells Krauss. Carbon emissions policy is “the elephant in the room,” he says, and underlies Exxon’s gas calculus: Faced with a price on carbon emissions, the world’s power generating companies will opt for natural gas, since it puts out just 60 percent of the CO2 of coal. Here is Colton:

While nuclear has an important role to play, you can’t do that fast. And then you have that power generation C.E.O. sitting there, and thinking, for my next big plant should I make it gas or coal? Well, it’s pretty easy if you think there is going to be any risk of a carbon cost, with natural gas being 60 percent cleaner, gas just makes sense.