Exxon and gas markets tell different stories

Won’t stop, can’t stop. Exxon Mobil boss Darren Woods me a bold statement on Friday. Fossil fuels, he argues, are not in decline. Among reasons: size of global energy demand, economic growth and population expansion. $8.2 billion of quarterly earnings produced by $465 billion oil major Woods runs, and rival Chevron’s earnings of $5.5 billion, show that se firms are indeed embedded deeply in world economy. But low natural gas prices tell a different story about industry’s future.

While Exxon gushed profit in first quarter, its earnings still shrank 28% from same quarter a year ago; Chevron’s fell 16%. One problem was abundance of natural gas, which depressed prices. Both companies are big in Permian Basin of Texas and New Mexico, where oil pumping releases gas as a byproduct in a ratio that is rising over time. In dition, regulatory fines and curbs over “flaring," process whereby gas is burned off, is increasing amount of stuff sent to market. This abundance is overwhelming pipelines, which carry fuel to market. Local prices even turned negative earlier in April, as some producers paid to have gas taken off ir hands.

A new pipeline, scheduled to enter service shortly, should alleviate this problem. But it won’t stop problem of continued planetary warming. last two winters were relatively mild across much of norrn hemisphere, and since natural gas is used for heating, demand was lower than expected, pushing downwards on prices. It’s reasonable to assume that will continue. And rise of innovations like electric-powered heat pumps to replace fossil fuels will be increasingly favored by lawmakers.

Even promise of massive exports of liquefied natural gas may disappoint expectations. Morgan Stanley said recently it expects LNG production will cause oversupply in gas market to reach multi-dece highs over coming years. That suggests that two things could be true: Woods can be right that fossil fuels will still be in demand for a long time at a greater level than many expected, and that profitability of fossil fuel producers can noneless remain under pressure. With Exxon’s stock only tring at 13 times estimated earnings over next year, according to LSEG data, investors are siding with low prices.