Exxon CEO says low U.S. natgas prices not sustainable

Wed Jun 27, 2012 11:10am EDT

(Reuters) - U.S. natural gas prices are too low to allow the energy industry to cover the cost of finding and producing new supplies, the head of top producer Exxon Mobil (XOM.N) said on Wednesday.

Record production, thanks to new technologies that tap natural gas trapped in shale rock formations, pushed U.S. natural gas prices to 10-year lows below $2 per million British thermal units (mmBtu) in April, though prices have since rebounded.

"The cost of supply is not $2.50. We are all losing our shirts today," Rex Tillerson, chief executive officer of Exxon Mobil, said in a presentation at the Council on Foreign Relations.

Gas prices have risen over 50 percent since April's lows, and were up more than 5 percent on Wednesday to nearly $2.95 per mmBtu.

Still, prices remain well below the $4-$5 level that makes drilling in pure natural gas fields profitable. Most producers have moved over to more lucrative oil and liquids-based plays to fetch higher prices, which has begun to put a slight dent in U.S. gas production.

Tillerson also said the recent decline in oil prices appeared to be linked to rising crude oil inventories, economic worries in Europe and a slowdown in China's growth, as well as a more stabile political situation in the Middle East.

"I don't know how far (oil prices) can go. There's room for it to go lower. There's also room for it to come back up in the future," he told reporters.

U.S. oil prices have dropped about 25 percent since the beginning of May.

(Reporting By Matt Daily; Additional reporting by Ed McAllister; Editing by John Picinich and Jim Marshall)

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