Exxon Declares Gas King

By TOM FOWLER

Natural gas will replace coal as the leading fuel for generating electricity in the U.S. by 2025, when it will also become the world's No. 2 overall fuel source thanks to its abundance and a drive for cleaner-burning energy, according to the latest long-term outlook from Exxon Mobil Corp.

The closely watched study, set to be released Thursday, forecasts that global energy demand will grow about 30% by 2040 as the world population climbs to nine billion from seven billion.

Natural gas will overtake coal as the second-largest fuel source overall, ranking behind oil and powering everything from electrical plants to home-heating systems. But Exxon said coal use will continue to grow through 2025 around the world, primarily in developing nations such as China and India and the African continent, because economic growth will be fastest in emerging nations.

But thereafter coal use will start to drop, for the first time in history, according to the study, which Exxon uses to help its long-range planning. Key drivers in that expected drop in coal use will be growing demand for fuels that produce fewer greenhouse gases and a decline in China's population expected after 2030.

Exxon in recent years has moved to expand its natural-gas business, including the $25 billion purchase of U.S. shale-gas producer XTO Energy in 2010.

But the report isn't a public-relations exercise, said Bill Colton, Exxon's vice president of corporate strategic planning, who oversees the report.

"It's not about the future Exxon might like to see, but what we think will happen," Mr. Colton said. "The last thing we want to do is delude ourselves about the future."

Exxon has created a world-energy outlook for decades to help guide its many business units in long-term planning, but it wasn't until 2004 that the oil major, based in Irving, Texas, decided to publish it.

The report doesn't predict energy production or forecast prices.

The report is bullish on overall global economic growth and accompanying energy-demand growth through 2040, Mr. Colton said, in spite of the economic problems in the U.S. and Europe. Energy-demand growth in developed nations is expected to be modest in coming years and actually fall 2% overall from 2010 to 2040, thanks largely to efficiency improvements, Exxon predicts.

But developing nations will see energy demand grow 57% through 2040, with demand for electricity expected to grow by 80% as the standard of living improves, the report projected.

The report also predicts that between 2030 and 2040 hybrid vehicles—cars that use a combination of gasoline engines and electric motors—will move from the margins of the market to the mainstream, from about 1% of the current fleet to more than 40% in 2040.

Overall vehicle-fuel efficiency will grow from 27 miles per gallon in 2010 to 48 mpg in 2040, according to Exxon. This will lead to a flattening of fuel demand for passenger cars despite a doubling of the fleet to 1.6 billion vehicles by 2040.

Demand for fuel by large trucks, airplanes, ships and trains will rise by 70% from 2010 to 2040, however, driven by world economic growth and the need to move more global cargo. Global demand for diesel is expected to rise by 85% through 2040, while gasoline demand will be down 10% by 2040.