ExxonMobil is riding an unprecedented gap in the price differential between crude oil and natural gas, as well as an explosion in its own gas holdings, to record profits in its plastics/chemicals business, while nonintegrated producers or those that rely on petroleum-derived naphtha get squeezed. On March 21, as Brent crude, a European benchmark and West Texas Intermediate, a U.S. indicator both rose, trading around $114 and $102/bbl, respectively, natural gas dropped again, to trade just over $4/million BTUs, further emphasizing the company's advantage over rivals like Dow Chemical.
In a March 9, analyst presentation at the New York Stock Exchange, ExxonMobil stressed the growing import of natural gas. The company forecast that energy demand would expand roughly 35% by 2030, with the highest average annual growth over that time period coming in natural gas, at 2% (0.7% for oil). Oil would maintain the largest share of energy demand, at about 200 quadrillion BTUs, but gas would beat out coal, nuclear and renewable energy sources, with more that 150 quadrillion BTUs. The growth in gas demand is expected to be led by power generation with utilities switching to gas from coal to lower their emissions.
Natural gas has meant much more than that for ExxonMobil, however. In a slide in the same presentation entitled, "Chemical Feedstock Advantage", the company showed that better than 50% of its chemicals feedstocks comes from ethane, thanks to North American reserves, compared to around 25% for liquefied petroleum gas (LPG) and naphtha, roughly inverse from the industry at large, ExxonMobil also utilizes about two times more low-cost heavy feedstocks than the industry at large.
Record plastics profits
Within chemicals, ExxonMobil enjoyed a nearly 20% return on average capital employed from 2000-2010, more than double that of its competitors, including BP (through 2004), Royal Dutch Shell, Chevron (through 2009) and Dow Chemical. The integrated natural gas has been a boon to ExxonMobil's chemical earnings, which include the commodity resins, polyethylene and polypropylene.
Chemical earnings for all of 2010 at ExxonMobil were a record $4.913 billion, up nearly 89% from $2.604 billion in 2009. Improved margins increased earnings by $2 billion while higher volumes boosted them by about $380 million. The company had prime product sales of 25,891 kilotons, up 1066 kilotons from 2009.
|The Energy Information Administration's map of continental U.S. shale gas reserves.|
ExxonMobil reports having 79 trillion cubic ft of proven natural gas reserves, with equal amounts of shale gas and conventional reserves leading the way. The company's unconventional resource base, which includes shale gas and light oil, as well as heavy oil and oil sands, grew a staggering 90% from 2005-2010, and now accounts for 40% of the company's total resource base. While heavy oil/oil sands stayed roughly the same, unconventional gas and light oil exploded by nearly 10 fold. By 2020, ExxonMobil expects unconventional gas to double, with tight gas and CBM staying steady, while shale output nearly triples.
On the gas side, unconventional includes shale gas, tight gas, tight-gas coal-bed methane, and coal-bed methane (CBM). For oil, it includes shale oil, tight oil, and heavy oil/oil sands. The largest shale-gas plays for ExxonMobil North America are Marcellus (390,000 net acres), which extends across West Virginia, Pennsylvania, and New York state; with Eagle Ford (120,000 net acres) and Barnett (245,000 net acres) in Texas; Fayetteville, Arkansas (550,000 net acres); Woodford (205,000 net acres) in Oklahoma; and Haynesville/Bossier (240,000 net acres) straddling the Texas, Louisiana border. In the upper northeast corner of British Columbia, the company also has the Horn River shale gas deposit (340,000 net acres).
Outside the U.S. and Canada, ExxonMobil has shale gas plays in Colombia, Argentina, Poland, and Germany, with tight gas opportunities in Germany and China, and coal-bed methane in Germany and Indonesia.
Fourth quarter 2010 natural gas production was 14,652 mcfd (millions of cubic feet per day), up 3,935 mcfd from 2009, with the growth driven by additional U.S. unconventional gas volumes and project ramp-ups in Qatar.
The view from Dow Chemical
Dow Chemical, which itself doesn't enjoy integrated production but works to partner with companies that do, has increased the cost of its polyolefins to keep pace with increases in feedstocks. In the fourth quarter of 2010, the company announced that in addition to a 12% increase in volume, it raised prices by 10%, with the combined basics segments, which include polyolefins, up 16%. That was needed to more than offset what Dow says was $685 million increase in feedstock and energy costs.
Going forward, Dow said its aim is to "further tilt the plastics franchise toward higher-margin, specialty applications." It also called for "increased ethane flexibility" on the U.S. Gulf Coast, continued price/margin management, and growth in emerging geographies.
ExxonMobil plans to demonstrate what it calls "its leadership across the natural gas value chain" at the 2011 Gastech Conference and Exhibition (March 21-24; RAI Exhibition Center; Amsterdam). ExxonMobil said it sells approximately 14 billion cubic feet of natural gas/day to a diverse customer base, while also managing about 1 million barrels per day of natural gas liquids. —PlasticsToday Staff