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Exxon Mobil warns red tape risks snuffing out gas boom
Tue, Jun 05 06:57 AM EDT
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By Charlie Zhu and Rebekah Kebede

KUALA LUMPUR (Reuters) - Exxon Mobil Corp (XOM.N), the world's largest publicly listed energy company, warned on Tuesday that too much government regulation could undermine a rapid global expansion of gas output from a range of unconventional sources.

Helped by a boom in shale gas, Exxon Mobil has become North America's largest natural gas producer, but energy firms face pressure for tighter regulation of the industry over concerns about the impact of drilling on the environment and also public concern that U.S. gas prices could rise if the gas is exported.

Exxon Mobil Chief Executive Rex Tillerson said governments had to ensure the right environment for future investments in gas projects.

"Regulations should provide a clear, efficient roadmap for how to get things done, not a complex tangle of rules that are used to stop things from getting done," Tillerson told the World Gas Conference in the Malaysian capital.

"If government puts the development of these new sources of energy at a standstill, they will find their economies walking backwards," he added.

Tillerson did not explicitly single out U.S. policy, but later told Reuters the country needs a "sound" energy policy and that putting off such a policy was "not particularly useful".

Executives who attended the conference said they assumed Tillerson's comments referred to the recent controversy over unconventional gas development in the United States and some said they were surprised by the forcefulness of his comments.

"The recent North American experience in unconventional development has reminded the world of the value of competitive and free markets for improving the lives of consumers," Tillerson said.

"But technological breakthroughs that allow for unconventional gas recovery emanate from investments and industry in private markets, they are not the result of government policies that pick winners and losers."

U.S. President Barack Obama's administration has been under pressure to rein in energy exports from the Unites States to protect consumers and manufacturers from price spikes.

The White House has said that while it is not opposed to exporting LNG, it will base its decision on whether or not to allow more gas export projects to proceed on an official analysis on the economic impact of sending gas abroad which will be completed later this year.

The rapid rise in production of shale gas and oil trapped in difficult reservoirs has revolutionized the industry of the United States, the world's top fuel consumer, turning it from the biggest gas importer to a potential exporter.

Lawmakers have called for the federal government to consider four factors when weighing energy exports: national security, energy security, economic impacts and environmental protection.

ENVIRONMENTAL CONCERNS

The surge in unconventional supplies will see the United States overtake Russia as the world's biggest natural gas producer in 2017, the International Energy Agency said on Tuesday.

The IEA expects total U.S. gas production to rise from 653 billion cubic meters (bcm) in 2011 to 769 bcm in 2017.

"Governing or setting policy and regulations based on the precautionary principle will stifle innovation and investment and bring development to a standstill," Tillerson said.

Exxon and other energy companies such as Chevron Corp (CVX.N) have faced calls for tighter restrictions on exploiting unconventional gas such as shale gas due to environmental risks.

Energy companies use hydraulic fracturing, or fracking, to create fissures in rock like shale that allow oil and gas to escape. In the process water, sand and chemicals are pumped at very high pressures into wells drilled deep into the ground.

France, which has some of Europe's largest shale gas reserves, last year banned the use of fracking on worries about environmental damage.

About a year ago, South Africa also imposed a fracking moratorium on oil and gas exploration licenses.

A global framework for unconventional gas development for all members of the International Energy Agency is necessary to produce unconventional gas, IEA Executive Director Maria van der Hoeven told Reuters on Tuesday.

"If there is no regulatory framework for the exploration of unconventional gas - well we have seen what has happened in France and in South Africa - then the gas will stay where it is. Underground," van der Hoeven said.

U.S. LNG EXPORTS

Tillerson said Exxon Mobil is studying plans to export LNG from the United States. The United States has approved just one LNG export project, but 14 more have either filed for approval or are under consideration.

U.S. natural gas prices have hit their lowest in a decade and are expected to remain low for years because of increased output from unconventional reserves including shale gas, prompting developers to look for ways to export it to higher-paying markets in Europe and Asia.

U.S. gas futures were around $2.40 per million British thermal units (mmBtu) on Tuesday, while Asian spot LNG prices were about seven times more expensive at over $18 per mmBtu for July cargoes.

Exxon is looking at building a new petrochemical plant in Texas to take advantage of cheap shale gas, but has not decided on the level of investment nor whether it would export petrochemicals, Tillerson confirmed.

"We will see where the markets are for those chemicals," he said speaking on the sidelines of the conference.

The plant could be online as soon as 2016, according to a U.S. environmental filing seen by Reuters.

(Additional reporting by Simon Webb; Writing by Ed Davies; Editing by Himani Sarkar)


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