Commodity price recovery spurs confidence among oil and gas CEOs
A year after the global outbreak of the coronavirus and the oil and gas demand destruction that the pandemic caused, the building recovery in commodity prices and how markets are reacting have renewed optimism among energy company chief executives, consulting firm KPMG found in a new survey.
While there are concerns about the impact of potential policy changes by the new US administration to reduce carbon emissions, oil and gas executives are embracing the global energy transition, both out of necessity and as a growth opportunity.
During a webinar April 27 in which the results of the survey were discussed, Regina Mayor, KPMG’s global head of energy, and Robert Johnston, who leads the Eurasia Group’s energy and natural resources practice, said industry confidence has generally not been dampened by President Joe Biden’s proposals, in part because some of those proposals may get thwarted in a divided Washington.
“Are we having a war on energy with the Biden administration? It’s easy to draw that conclusion. I would say we’re not there yet,” Johnston said.
He said he believes moderate Senate Democrats like Joe Manchin of West Virginia “will be a limiting factor and prevent that all-out war on energy that some have feared.”
In a letter to investors and an accompanying presentation posted on its website April 27, ExxonMobil reiterated its goal to reduce carbon emissions while at the same time continuing to capitalize on its extensive fossil fuel footprint. It believes scale will allow it to help meet countries’ net zero ambitions, while also capturing future growth opportunities.
” We are currently advancing plans for more than 20 CCS opportunities around the world, including working with government leaders on an innovative multi-industry Houston hub concept that has the potential to more than double the world’s total carbon capture capacity,” ExxonMobil said in the letter.
Such efforts have been announced with increasing frequency in recent months by energy companies large and small.
Some 90% of energy business leaders that responded to the KPMG survey said they are focused on locking in sustainability and climate change gains their companies have made as a result of the pandemic, Mayor said.
While a plurality of those energy CEOs surveyed — 43% vs. 9% for all industries — believe that environmental and climate change risk pose the greatest threat to their organization’s growth, they remain bullish overall. Some 83% of those surveyed expect low to moderate M&A activity over the next three years.
The findings indicate that the primary driver for that activity will be to acquire disruptive technologies and to increase market share, Mayor said.
In the meantime, markets are churning.
Johnston forecasts that by this time next year, assuming there aren’t more waves of coronavirus lockdowns, OPEC+ oil production will be back to historical levels. In the US, signs of recovery in rig activity and financing among oil companies point to a gradual recovery continuing throughout 2021, Johnston said.
He offered confidence in gas and LNG export growth over the next five to 10 years, though he was less sure that would continue longer term. Post-2040, some forecasters have predicted declining LNG demand due to greenhouse gas emissions reduction goals.
“The bigger question is the long-term outlook and whether the Europeans and the US under Biden really back natural gas under the energy transition or take a more hostile stance like they have with coal,” Johnston said.
“I’m actually reasonably optimistic,” he said about LNG demand and the prospect of adding new US liquefaction capacity, though he quickly added: “I don’t think we’re going to get back to some of the growth conditions that we had in 2013.”