Environment: December 2009 Archives

In a move that we've seen take place before -- most recently in the pharmaceutical industry -- a giant company decided to purchase a smaller company in order to acquire its assets.  In the pharmaceutical industry, that's generally done so that the acquiring company can get the drugs that the smaller company has in production or in development.

In today's merger, Exxon is acquiring XTO Energy in order to acquire its natural gas assets.  The deal, which is an all stock deal for $31 billion, would provide Exxon with access to XTO's natural gas reserves at a time when natural gas prices are low.

The combination of the worst downturn since the Great Depression and large discoveries of natural gas have left its producers facing difficulties in getting the capital needed to expand and develop their resources.  XTO took advantage of this, acquiring many other companies, but it piled on debt in the process.

But, it gained control of major portions of unconventional gas reserves, such as those that are trapped in shale rock.  XTO controls an estimated 45 trillion cubic feet of natural gas.  With its purchase, Exxon is making a bet that gas prices will recover.  Part of this may be due to pressure to reduce greenhouse gases, as natural gas releases far less of the gases that are responsible for climate change.

When even the world's biggest oil company decides it's time to add cleaner buring natural gas to its assets, the handwriting is on the wall.

That is the argument that Gary Locke, secretary of the Commerce Department, is making.  Business Week met with Locke at the Copenhagen climate change summit, and noted that at the first week of the summit, Locke is in the lead role for the United States.

Locke said that he was "struck by the great enthusiasm by the business leaders...for aggressive actions against climate change."  When it came to climate change legislation that's currently in Congress, he said, "a whole cross section of industry supports strong U.S. legislation."

Locke, who in addition to highlighting the benefits of a move towards more environmentally sound practices, has been highlighting the threats that climate change presents, also said "business can't survive if subjected to floods or droughts."

At the event, Locke asked a small South San Francisco company called EOS Climate, which destroys climate warming gases from old refrigerators, how many jobs have been created.  The answer, of course was lots of jobs.  But larger companies, such as General Electric and Johnson Controls also generate revenue and jobs from green technology.  General Electric is looking to benefit from a push towards greener technology by selling wind turbines, energy efficient locomotives, and technology to make the electric grid more efficient.

But Locke is also concerned that without significant investment in green technology, the United States "will wake up and ask how Brazil or Singapore, or others became the Silicon Valley of green energy."

Locke said that other countries, such as Spain and Germany, that have become leaders in green energy have done so because of regulations requiring utilities to pay a premium for energy generated from renewable sources.  China, he said, is pushing into wind and solar and has invested heavily in these technologies.

But the United States, he said, is hampered by a lack of a national policy on green energy.  "I've heard from so many companies and investors that they are sitting on the sidelines until the rules are clear," Locke said. "The longer we wait the further other countries will move ahead."

Not surprisingly, Locke closed his interview with a push for Congress to pass climate change legislation.  "That's why it's so important for Congress to pass energy legislation as quickly as possible," he said.