Oil, gas CEOs concur on supply tightness, energy transition goals
The CEOs of of ExxonMobil, Shell and TotalEnergies all see a lack of investment in upstream oil and gas contributing to coming supply tightness following the pandemic, they told the Qatar Economic Forum on June 22, stressing, however, the importance of investment in low-carbon energy projects.
Speaking as they vie to get involved in a planned output expansion at Qatar’s giant North Field LNG project, the CEOs insisted gas and LNG, in particular, have a long-term role as the world transitions away from oil.
Nonetheless, they agreed the world’s focus on the energy transition could lead to a shortfall in upstream oil and gas supply, echoing comments in recent days by members of the trading community.
“Coming out of the pandemic and the lack of investment in our industry, I think is going to exacerbate the supply and demand tightness as the economies pick back up again,” ExxonMobil CEO Darren Woods told the online event, when asked to predict if oil prices will rise or fall. “And then, with time, we’ll see supply pick up and rebalance. So, we’ll see both of them, but in the shorter term, probably higher prices.”
For his part, Shell CEO Ben van Beurden pointed to “natural” rates of decline at existing oil and gas projects and said supply from these were set to fall faster than what would be required to meet the Paris Agreement goal of limiting global warming to 1.5 Degrees Celsius.
“If you look at the current supply sources of oil and gas, we are looking at decline rates in supply that seriously outpace any demand shrinkage that the world will need to follow in order to get to 1.5 degrees,” Van Beurden said.
TotalEnergies CEO Patrick Pouyanne concurred “there is a lack of investment because of the energy transition in the oil and gas industry,” but went on to note his company’s ambition to become one of the world’s top five renewable electricity producers by 2030, allocating 20%-25% of its capital expenditure to what he called “new energies.”
Pouyanne noted global demand for LNG had risen despite the pandemic, growing by 3% in 2020, according the company’s estimates, led by China and India. He stressed the importance of big, low-cost investment projects outside mature markets such as Europe and the US.
He said renewables could make a 10% return on capital over time, when low interest rates and the appetite of the financial community were taken into account, along with TotalEnergies’ strategy of selling on 50% stakes in such projects. He alluded to recent commitments by TotalEnergies in locations such as Taiwan, where it is involved in a wind power project.
“Of course if you rush to the most mature markets … if you participate in tenders, like in oil and gas, tenders will not deliver the best returns,” Pouyanne said, referring to claims that rivals have over-paid for involvement in renewable projects. “But if you are smart and able to create your own opportunities, there are a lot of opportunities around the planet to find very good returns.
“You can do it today if you consider the projects, but you use, of course, the low interest rates to leverage the projects, and also if you take [account of] the fact there is a huge attractiveness for many investors in green assets. All the assets we are developing we have a plan to divest 50% of them, and with this business model we reach 10% return on equity.”
Shell’s Van Beurden, whose company has been stung by a recent Dutch court ruling ordering it to reduce its emissions more rapidly than previously planned, by 45% by 2030, underlined the role of consumers and government regulation in meeting energy transition goals. He said 93% of Shell’s overall emissions were in the form of Scope 3 emissions resulting from consumption of its projects, and noted Shell’s sales of hydrocarbon projects exceeded its own production by a factor of four due to its marketing and trading activity.
“The more important part is that ultimately our customers will have to make the energy transition,” Van Beurden said. “Our Scope 3 emissions are 93% of our total emissions … so if we’re going to tackle the energy transition, we have to start working with our customers, how they will use different types of products that we may then indeed supply.”
Van Beurden also called out governments to “step up to the plate” in the role of regulation in areas such as home heating and transportation.