Exxon Mobil Corp will increase capital spending nearly 4 percent this year to $28 billion in part as the largest U.S. oil company seeks to increase its share of the global market for natural gas.

Exxon, with huge liquefied natural gas projects in Qatar and its planned deal to buy U.S. gas producer XTO Energy Inc in a $28 billion, all-stock deal, has been placing big bets on future demand for natural gas and that spending will continue.

Natural gas is expected to contribute more significantly to the energy mix over the coming decades, CEO Rex Tillerson told analysts at a presentation at the New York Stock Exchange.

A large part of the increase is expected to come from power demand, the company said.

Exxon, the world's largest publicly traded oil company, also told analysts that it had completed initial tests at Iraq's West Qurna field, where it won a 60 percent stake in the field that is estimated to have 8.7 billion barrels of reserves.

Tillerson declined to discuss potential volumes from the field, but said initial planning was going well. Security incidents, while still a challenge, seemed to be lessening in severity, he said.

I'm encouraged, but we are going to have to remain diligent to ensure we protect our people, the executive said. But at this point, we feel reasonably positive about moving forward.

In 2010, the company said it expects its oil and gas output to rise 3 to 4 percent, while it forecast long-term production growth of 2 to 3 percent.

Exploration plans for this year and the next call for Exxon to evaluate offshore fields in Southeast Asia, the Black Sea, Libya, and Brazil.

Exxon, the world's largest global refiner, said its downstream business could face depressed margins for the next several years. The company has been shedding under-performing plants all along over the last 10 years, which has helped it weather the steep decline in demand for fuel.

By contrast, Chevron Corp , the second-largest U.S. oil company, said on Tuesday it will eliminate 2,000 jobs and announced plans to sell one of its refineries.

Exxon stuck to its longer-term range of capital spending between $25 billion to $30 billion through 2014.

The Irving, Texas, company's deal to acquire XTO is expected to receive regulatory clearances in the near future, Tillerson said, and a closing is still expected in the second quarter.

Exxon's shares were down 20 cents at $67.02 in afternoon trading on the New York Stock Exchange.

(Additional reporting by Matt Daily; editing by Maureen Bavdek, Tim Dobbyn and Matthew Lewis)

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