Exxon Mobil Corp. will no doubt continue to dabble in alternative energy ventures such as converting algae to fuel, but its acquisition of Fort Worth-based XTO Energy is a $31 billion bet that renewables simply aren't viable enough to meet U.S. energy needs during the next two or three decades.

Instead, the XTO purchase shows Exxon Mobil believes the near future will be powered by natural gas. In what may be the most significant deal in the Oil Patch since, well, Exxon bought Mobil, energy's 8,000-pound gorilla has revealed its main strategy for dealing with both climate change legislation and the declining primacy of oil.

Exxon Mobil and other major oil companies have been struggling for years to find large new deposits of crude. The rise of government-controlled reserves worldwide and political instability in places such as Iraq and Nigeria have left them with few options.

Despite this week's bickering in Copenhagen, Exxon Mobil and its Big Oil buddies know that climate change legislation is inevitable. It doesn't matter whether they, or any one else, agrees with the science. Most of the world's policymakers are moving toward legislation to combat carbon emissions.

Burning natural gas still emits carbon, but far less than oil or coal. That, combined with its abundance, makes it the logical transition fuel.

Sure, wind and solar are cleaner, but they can't produce enough energy reliably enough to replace our consumption of fossil fuels.

“Exxon looked at it and said no matter how much you subsidize it, renewables can't make a meaningful contribution to the energy picture,” said Shahid Ghauri, who specializes in oil and gas law for the Houston office of Jones Day.

A value play
Exxon Mobil's decision has turned natural gas into a value play. Prices have plunged to less than $6 per million British thermal units from a high of more than $13 in July 2008, but Exxon Mobil has the deep pockets to ride out the slump and wait for the economic recovery to begin sopping up some of the domestic supply glut.

Many shale producers may not be able to wait that long. They've been struggling to raise capital for drilling programs as prices have fallen. Companies such as Chesapeake Energy began selling off acreage to majors such as BP to fund development.

Given the high drilling costs for shale gas, many wells may be money-losers at the current prices.

“They need access to capital, and they can't get that on their own,” Ghauri said. “They have to reach out to the majors.”

Validation arrives
Just as some were beginning to question the economics of shale, Exxon Mobil's deal brings shale its long-sought validation. Now, other majors may follow Exxon Mobil's lead, touching off a wave of mergers in the coming months. Already, investors are bidding up stocks of some of the largest players, essentially putting them in play as takeover targets.

This week, shares of The Woodlands-based Anadarko Petroleum rose 7 percent, Petrohawk and Chesapeake both climbed 9 percent and Devon Energy increased 8 percent.

“There's just going to be a natural migration to these unconventional plays by the majors,” Ghauri said. “The majors are going to be sucking them in like a giant black hole.”

Start of the migration
Make no mistake, Exxon Mobil's move is the beginning of a decades-long restructuring of the domestic energy industry. It's the start of a migration from oil toward other fuels. That's been talked about for years, but it's been mired in speculation over renewable fuels that aren't economical without government subsidies.

Now, that's changed. After this week, the smart money is now on gas.

Loren Steffy is the Chronicle's business columnist. His commentary appears Sundays, Wednesdays and Fridays. Contact him at loren.steffy@chron.com. His blog is at http://blogs.

http://www.chron.com/disp/story.mpl/business/steffy/6776266.html