Posted on 03/05/2014 5:38:18 AM PST by thackney
Chevron Corp. Chairman and CEO John Watson said the United States should get on with exporting oil and liquefied natural gas, saying that U.S. consumers and allies of the United States would benefit.
“The debate over the benefits of free trade was won a long time ago,” Watson told attendees at the IHS CERAWeek conference Tuesday in Houston, noting the role that free trade has played in facilitating economic growth. The benefits of export and free trade pose a “very straightforward, economic argument for consumers and the nation,” Watson commented.
While the controversy over exports of liquefied natural gas (LNG) from the United States has subsided from a year ago, the timing of U.S. and Canadian LNG export projects moving forward remains to be seen. Watson expects to see significant growth of LNG projects from the U.S. Gulf Coast and Canada’s West Coast.
“There’s no question that sufficient gas exists in the U.S. and Canada to export globally,” Watson said, noting that he sees a good market ahead for LNG demand past the 2020 to 2025 timeframe.
Watson sees the resources and desire by the Canadian government to move LNG projects forward. Watson also sees brownfield LNG export facilities moving forward quickly, but full-site development of greenfield LNG projects will be more expensive. While Watson sees demand for these projects and other opportunities around the world, robust pricing will be needed for projects to work.
“We need a meeting of minds for LNG project development,” Watson commented.
Hiring and retaining talent will pose an issue as a generation of workers who cut their teeth in the 1970s and 1980s retire and the industry accelerates training and development to cope with the talent shortfall. Watson sees the demand for jobs in the industry as a “wonderful chance” for the United States, where people are still in need of jobs.
The United States’ potential role as an energy exporter comes as the oil and gas industry, world governments, energy industry partners and global consumers face the dawn of a new energy reality brought on by global economic growth, Watson told attendees. Over the past decade, the world added another United States in terms of gross domestic product growth, with much of that growth occurring in the developing world. This growth has allowed more people to move into the middle class, and increased demand for goods, services and energy, Watson said.
“$100 a barrel is the new $20 in our business,” Watson said of that new reality.
While investment in oil and gas exploration and production has increased to meet this global demand, upstream costs have more than doubled over the past decade. Higher energy demand, investment and costs are part of the new “energy reality” that energy companies, governments, service partners and consumers face.
“If companies are saying no to development projects because of costs, we’re getting close to equilibrium,” Watson said. “When host countries respond by changing terms and being more receptive, that’s a sign of a new reality to me.”
Another new reality is that the projects that industry will pursue to meet demand are bigger, more complex and face longer lead times. With a cost squeeze facing many in the industry, the marginal barrel is coming from more expensive sources.
“The new reality is that costs have caught up with revenues,” said Watson, who also expects the trend of tightening capacity in services to continue.
Chevron can afford to be choosy with the projects it pursues, and is slowing development of some projects to ensure it has the cost equation balanced well. Chevron will still pursue development of the Rosebank development in the UK North Sea, but will recycle the project until it can bring costs down, Watson noted.
Resource-rich countries also see they need competitive fiscal terms to attract capital and investment.
“There’s no shortages of resources,” said Watson, adding that Chevron can now operate in more countries today than in all of Watson’s time with the company.
However, restraints remain above the ground on oil and gas investment in some parts of the world. Watson said he was glad to see Mexico and Argentina improving their fiscal terms to attract investment, noting that Chevron would not have invested $80 billion in Australia if the country didn’t have a stable government and policies.
“The new reality for consuming governments is that the conditions and fiscal terms have to be right to attract investment,” said Watson.
These include transparency, a straightforward permitting process, and a tax environment conducive for investment.
In the new reality, the consumer is the ultimate party that has an interest in energy policies, given that energy will be more expensive, Watson said. In this reality, subsidies for energy resources are not sustainable indefinitely. Germany and the UK have rolled back subsidies, and Indonesia had to raise prices for its consumers to reduce costly government subsidies.
Pointing to the growing income disparity in the United States, Watson said that many energy policies actually promote income disparity. While the wealthy can afford to pay more for energy, the poor bear the greatest burden of energy subsidies.
Watson expects more growth in the world economy and more people moving into the middle class as a result of free trade and economic policy. Meeting this energy demand will require development of all forms of energy.
“We have the geology, the technological know-how to develop the world’s resources,” said Watson. “We just need to get all the policies right above ground so we can invest and meet the needs of a growing world,”
Watson said the industry was caught by surprise in terms of infrastructure to support its needs, noting that industry needs to respond more collaboratively and work with suppliers and service companies in terms of building capacity to operate at sustained levels. The oil and gas industry also faces a challenge from the significant pressure on labor availability for the petrochemical, LNG and traditional oil and gas projects – and projects in other industries – in areas such as the U.S. Gulf Coast.
Watson said the industry has come a long way in its understanding of shale plays, but still does not yet know how far it can go in terms of liquids production. Chevron has had success in the Marcellus shale play in Pennsylvania, the Permian Basin in West Texas, and western Canada’s Duvernay play. The company also has recently entered Argentina. Other less mature plays in China and central Europe are in the early stages of development.
Watson remains bullish on energy growth in Asian countries, noting that the pace of economic development that will lift more people out of poverty is a good thing to see. However, these countries will need to make decisions on policies on energy issues, such as the move towards using cleaner sources of energy. Watson said it would be interesting to see how China addresses pollution in the country.
Bent Oil at 108.
Get Oil under 70.00 and Putin would be done.
export all you want after the price at the pump is $2.00 p/gal.
As an American I give crap about the "worlds" middle class? What a bunch of gloBULList crap...
Natural Gas is not Gasoline.
As an American I give crap about the “worlds” middle class?
- - - - - -
It isn’t about caring for them. Reality is their increase in demand impacts global prices. We are still importing nearly as much oil as we produce our selves. We are closely tied to the global market.
Well aren’t you the little perfect gloBULList. I guess you probably believe in gloBULL warming too.
Name calling. Nice.
Global demand affects global pricing and we buy a lot from the global market.
I’m am not promoting it. It is reality.
When we get into a major Asian war the Free traitors will be swinging from the lamp posts.
They’re predicting that by 2050 Asia and Africa will each add a billion more to the population and by 2100 Africa will add 2 more billion. 7 come 11
I don’t understand how you relate that to my words.
We import nearly half the oil we refine in this country.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.