Shell and Exxon: Natural Gas is the Future

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Prices of natural gas continue to plunge a midst the declining demand and abundant supply. But despite that, Royal Dutch Shell plc  (NYSE:RDS.A) and Exxon Mobil Corporation (NYSE: XOM) remain steadfast in their projections that oil demand will gradually shift to gas in the near future.

Royal Dutch Shell plc  (NYSE:RDS.A) stays optimistic that the increasing prices of crude oil, now trading at more than a hundred dollars per barrel, will eventually force many manufacturers of cars to use gas for fuel, as well as electric providers to resort to gas for energy. That is why Shell  is now aiming at converting natural gas, currently selling at an oil-equivalent of $12 per barrel, into diesel fuel; hopeful in earning quite remarkable profits by as much as 10 times its prices.

On the other hand, Exxon Mobil Corp. shares the same long-term outlook on natural gas to meet the growing worldwide demand for energy. While it has already been accustomed to plunges in prices of natural gas that caused the company some minor losses and dive in share prices, Exxon Mobil Corp. continues to pump natural gas. The company remains committed to eventually grow its natural gas business by increasing the worldwide demand for natural gas for energy.

Between these two companies, Shell has more investments at stake, as the company tries to move ahead of the projected demand by venturing further into building a gas-to-liquid (GTL) facility. This would cost the firm billions of dollars to build in the next decade.

Such proposal is quite risky in a volatile market where shale gas production tremendously increased while the demand is declining. Shell  is currently the largest GTL plant operator, having a GTL facility somewhere in Qatar that has 140,000-barrel per day capacity. It costs the company about $18 billion to build within a span of 5 years. It is now aiming to expand its facilities, by building another one in either Texas or Louisiana, with daily production capacity of 70,000 barrels of liquefied natural gas.

This move caused some mixed reactions from different analysts groups. The 10-year low prices of gas may not be able to sustain the long-term goals of the company. Another sharp decline of gas prices and all hopes for natural gas as the next major source of energy in the future might be erased for good.

On the trading floors, Exxon Mobil Corp. share prices fell by 1.50 or 1.73%, closing the day at $85.35 per share. The quarter earnings report that shows missed projections still takes a blunt on its share prices. Shell  on the other hand is enjoying generous gains of 2.06. It closes at $70.92, a 2.99% increase from its previous close at $68.86. Both companies have good P/E ratios at 10.14 and 7.13 respectively.

The optimism of Exxon Mobil Corp. and Shell regarding the use of natural gas for fuel and energy may be a bit risky today in the midst of declining natural gas market. But in the near future, light might finally shine forth at the end of the tunnel, as more people, companies, and entities are forced to seek cheaper sources of energy like natural gas to fight the increasing prices of crude oil.


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