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CERAWeek Update – Day 2: Here Are the Highlights

These translations are done via Google Translate

Welcome to day two of CERAWeek by S&P Global in Houston. In the morning, Exxon Mobil Corp. Chief Executive Officer Darren Woods slammed Europe’s windfall profit tax on oil and gas producers, while US Special Presidential Envoy for Climate John Kerry called for finding ways to meet energy demand without undermining the transition to cleaner fuels.

OPEC Secretary General Haitham Al-Ghais spoke in the afternoon, saying that slowing oil consumption in Europe and the US is posing a concern for the global market, even as Asia experiences “phenomenal” demand growth.

All time stamps are Houston.

Kazakhstan Aims to Diversify Oil Routes From Russia (5:55 p.m.)

Kazakhstan’s “number one problem,” according to its energy minister, is how to diversify its oil routes so that the nation isn’t dependent on Russia to export its crude.

Energy Minister Bolat Akchulakov said Kazakhstan is planning a new pipeline that would take its crude to the Caspian Sea for export. But developing such a project could take five years and would also require a new fleet of oil tankers, he said at a panel. Currently, Kazakhstan relies on the CPC pipeline, which traverses Russia, to move its oil to market.

IRA Is ‘Game Changer,’ Woodside’s O’Neill Says (5:40 p.m.)

Energy executives from Canada and Europe have already expressed their admiration, even envy, for the US’s Inflation Reduction Act. Now add Australia to the list.

“The IRA is a game changer, in some ways it takes the US to the front of the race for these sorts of investments,” Meg O’Neill, chief executive officer of Perth-based Woodside Energy Group Ltd., said in an interview. Australia has “all the ingredients” to become an export powerhouse for low-carbon hydrogen or ammonia but extra fiscal incentives from government “would be helpful,” she said.

“We’re talking about investing in new technologies and so that requires significant investment from both the producer of the new energy and the consume,” she said. “What government can do is help bridge some of that pricing gap.”

Fossil Fuel Groups Press G-7 on Gas Role in Global Security (5:21 p.m.)

US fossil fuel advocates lobbied representatives of the Group of Seven nations to use upcoming summits to explicitly affirm the role of natural gas in global energy security and to support investment in the sector.

Senior executives of the American Petroleum Institute, LNG Allies, the US Chamber of Commerce and other groups pressed their case in a meeting with G-7 representatives on the sidelines of the CERAWeek conference. They also penned a letter to Fumio Kishida, the prime minister of Japan, which heads the G-7 this year.

Industry leaders told Kishida the G-7 should adopt stronger language that builds on a June 2022 statement recognizing “the important role increased deliveries of LNG can play” in phasing out dependency on Russian supplies.

Geothermal Power Now Competitive Due to IRA, SLB Says (4:55 p.m.)

Geothermal power is now competitive with renewable and conventional fossil resources as a baseload power supply thanks to the US Inflation Reduction Act, said Gavin Rennick, president of SLB’s New Energy business.

“The IRA impact on geothermal is as much as 15% in levelized cost of electricity,” Rennick said in a Bloomberg TV interview. “That makes it competive now with combined gas cycle as a baseload power supply.”

Geothermal power has been projected to grow from 16 gigawatts to as much as 300 gigawatts, Rennick said.

Canadian Oil Sands Production to Expand at Slower Pace (4 p.m.)

Oil production in the Canadian oil sands will grow at a slower pace moving forward, said Cenovus Energy Inc. CEO Alex Pourbaix.

“Years of Canadian oil sands production growing by 300,000 or 400,000 barrels a day are long gone,” he said. Drillers will direct more and more capital to decarbonization efforts, and less on expanding oil production, he said.

Carlyle’s Goyal Says Wider Lens Needed for Energy Investing (3:54 p.m.)

The next phase for investing in the energy transition now includes batteries, electric vehicles and green ammonia, according to Pooja Goyal, chief investment officer for Carlyle Group’s global infrastructure business.

“Investing in renewables alone was probably energy transition 1.0,” Goyal said in an interview with Bloomberg TV. “At this point in time, you really need to widen the aperture to look beyond renewables.”

Capital provided by private-market investors such as Carlyle, which has about $400 billion in assets under management, is best suited to invest in the energy transition, she said. The industry has the potential for a lot of growth but has also historically had an under-invested supply chain, she said.

Pioneer’s Sheffield Says US Shale M&A Will Be Limited in 2023 (3:25 p.m.)

Don’t hold your breath for a wave of big deals in the US shale space, the CEO of Pioneer Natural Resources Co. said.

The reluctance of potential buyers to pay a big takeover premium, and the backwardation in oil market — in other words, how crude is trading at steadily lower prices along the futures curve, indicating a long-term bearishness — are the two main reasons there won’t be significant mergers and acquisitions in the sector this year, Scott Sheffield said in an interview.

Sheffield’s caution on shale M&A contrasts with a recent McKinsey & Co. report that said the industry is set for a $230 billion boom in dealmaking this year as companies look for ways to deploy all the cash they made in 2022.

OPEC’s Al-Ghais Sees Divided Global Market (3:19 p.m.)

OPEC Secretary General Haitham Al-Ghais said that slowing oil consumption in Europe and the US are posing a concern for the global market, even as Asia experiences “phenomenal” demand growth.

“We see a divided market — almost like two markets,” Al-Ghais said Tuesday. Ensuring “security of demand” is as important in these places as ensuring supply, he said, adding that companies aren’t willing to invest billions in energy production if they’re being told by governments that oil won’t have a place in the energy mix in the coming years.

“OPEC cannot shoulder this alone,” he said, referring to investment in oil production.

Activists Plan Wednesday Protest on Fossil Fuels (3:07 p.m.)

While Biden administration officials and oil executives huddle inside the CERAWeek conference Wednesday, activists will be rallying outside, with a protest demanding a halt to new fossil fuel infrastructure.

Activists plan to use their midday march through downtown Houston and a protest outside the George R. Brown Convention Center to insist the Biden administration stop approving new oil and gas export terminals and respect indigenous rights. According to an advisory emailed to reporters, they will also call on the administration to commit to meet with the leaders of Gulf Coast communities on the front lines of oil and gas projects “instead of pandering to Big Oil executives at CERAWeek.”

BP CEO Says Spending Strategy Draws Some Frustration (2 p.m.)

BP Plc CEO Bernard Looney said there’s been “some frustration, some disappointment” from civil society groups after the British oil major announced higher spending on oil and gas earlier this year.

Shareholders and employees are mostly on board with the strategy, which also entails spending as much as $8 billion extra on energy transition investments, Looney said. But the reality of the markets today means companies like BP need to continue to also invest in today’s mostly fossil fuel energy system to keep supplies affordable and secure.

BP spent 30% of its capital budget on energy transition investments, compared with just 3% a few years ago, Looney said.

EQT Sees US Natural Gas Market in Balance Mid-Year (1:54 p.m.)

The head of EQT Corp., the largest producer of natural gas in the US, said he sees the domestic market coming back into balance in the “middle half” of this year as production adjusts following the recent precipitous collapse in prices.

Gas futures have tumbled by more than half in the past three months. That’s spurred a pullback in drill-rig deployment, specifically in the Haynesville shale basin, which straddles Louisiana and East Texas, EQT Chief Executive Officer Toby Rice said in a Bloomberg TV interview. EQT is focused on the Marcellus shale in Appalachia.

“Simply put, weather did not show up this year, and that’s created” a surplus of about 500 billion cubic feet of gas, Rice said. “But as a result of these lower prices, we do think that activity levels will adjust accordingly.”

Conference Attendance Hits a Record (1:42 p.m.)

Preliminary numbers are in: CERAWeek attendance this year hit a record, with about 7,000 delegates, conference organizers said. The 41st edition also features a record number of speakers at about 1,000, said Jeff Marn, a spokesman. Attendance is up from about 6,000 people last year, he said.

Oil Markets on Pace to Tighten, Traders Warn (1:15 p.m.)

Worldwide oil markets will tighten during the second half of this year, driven by a recovery in demand from China, top commodity traders Gunvor and Trafigura said.

Meanwhile, supply is unlikely to grow significantly, especially in the US, they said. Crude and condensate production in the US is expected to rise by about 700,000 barrels per day in 2023 and long term, output is likely to peak by the end of the decade primarily due to the slow pace of investments, said Helen Currie, ConocoPhillips’ chief economist.

IRA Seen Drawing Investment Away From European Refiners (1:10 p.m.)

The US Inflation Reduction Act is drawing investment in technology away from European refiners, said executives from Poland’s PKN Orlen and Spain’s Repsol SA.

Excessive regulatory restrictions also create hurdles for investment, said Juan Abascal, executive managing director at Repsol. “Europe has decided to place the cost of energy transition on the consumer,” Abascal said, while in the US taxpayers are bearing the burden. The next generation of consumers — which will benefit more from the transition to cleaner energy — will be able to support its costs, he said.

EnerStar Solutions

For Houston-based Phillips 66, building a business case based on a government incentive isn’t as attractive as it looks from the outside. “I wouldn’t say it’s a comfortable position to be in,” said Zhanna Golodryga, an executive vice president at the company, which is currently building one of the world’s largest renewable diesel plants.

Williams CEO Says Renewables Have Boosted Gas Demand (1 p.m.)

Greater deployment of wind and solar energy in key US markets have been followed by an increase in demand for natural gas pipelines and storage, according to Williams Co. Chief Executive Officer Alan Armstrong.

“As renewables keep getting added, our actual incremental peak load continues to go up,” Armstrong told Bloomberg Television. “That’s because gas is commonly used as a backup fuel for renewable energy, he said, adding that gas infrastructure including storage is “going to be critical” as the nation transitions to cleaner forms of energy.

Kerry Calls for Balancing Energy Transition, Demand (12:42 p.m.)

The world must find a way to meet energy demand without undermining the transition to cleaner fuel sources, said John Kerry, the US special presidential envoy for climate.

“The demand is there globally and people are demanding that we keep our economies moving. You can’t just suddenly shut off your economy,” Kerry said during an interview with Bloomberg TV in Houston. “But at the same time you can stay focused on reducing the emissions that are the byproduct of that energy that keeps your economy moving.”

Cheniere Will Add Pipeline Capacity at Sabine Pass (11:55 a.m.)

Cheniere will need to add new natural gas pipeline capacity to its Sabine Pass terminal in Louisiana, where it’s planning a major expansion, CEO Jack Fusco said.

The line will need to tie back to a production area directly to ensure deliveries for contracted customers, whether that’s a short line to the Haynesville in Louisiana, or going up to the Marcellus shale in Appalachia or to Canada, he said.

The four lines feeding Sabine are maxed out at about 5 billion cubic feet per day, and Cheniere currently pays about $800 million for firm pipeline capacity to deliver to that terminal. “We like to be into the basin because we have to provide the molecules to customers,” Fusco said.

Trafigura Is Doing ‘Major’ Audit After Alleged Nickel Fraud (11:42 a.m.)

Trafigura Group is carrying out a “major internal audit” after being hit by an alleged nickel fraud, CEO Jeremy Weir said in an interview, in his first public comments on the subject. The company shocked the commodities world last month when it announced it was facing losses of nearly $600 million after finding that cargoes of nickel it had bought didn’t contain any nickel.

“You’ve got to learn from experiences like this,” he said in an interview with Bloomberg TV. He emphasized that the alleged fraud was limited to a particular line of Trafigura’s business, and that the company had found no internal involvement from its own employees.

Weir also said that China is already exerting a “pull” on some commodities and appears set to surpass the economic growth target of 5% announced at the weekend.

Demand is “looking very good,” while shops and restaurants are full, he added, noting that international travel is likely to pick up strongly as well. Globally, “we are surprising very much on the upside,” Weir said.

Kuwait Expects Full Production at Oman Refinery by Year-End (10:40 a.m.)

Kuwait expects full production volumes at its 230,000 barrel-per-day joint venture refinery in Oman by the end of the year, Kuwait Petroleum Corp.’s deputy chairman and CEO Nawaf Al-Sabah said at a press conference Tuesday. Kuwait has committed to supply about 65% of the crude the refinery will process, Al-Sabah said.

The country’s national oil producer hasn’t lost any Asian market share amid competition from relatively cheap Russian crude supplies, Al-Sabah added.

“They have built their refineries to handle Kuwait export crude so it’s not easy for them to switch around,” he said.

His comments in Houston came a day after he told Bloomberg TV that Chinese oil demand is growing strongly as “pent-up demand” accumulated during the pandemic is unleashed. On Tuesday, he described the Chinese resurgence as “sustainable.”

Kuwait sits atop one in every 10 barrels of the world’s untapped crude, and Al-Sabah said he foresees the OPEC member participating in global oil markets for at least another 85 years.

Higher Copper Prices Will Trigger New Mines: Freeport CEO (10:18 a.m.)

Higher copper prices will bring new mining projects to churn out the metal needed to support the global energy transition, according to the head of the world’s largest publicly traded copper company.

There isn’t enough copper being produced in the world over the medium- to long-term to support the energy transition, Freeport-McMoRan Inc. CEO Richard Adkerson said Tuesday during a Bloomberg TV interview at CERAWeek in Houston. That means copper prices will rise, which will ultimately prompt new mining projects.

Occidental Sees Oil Production Falling Short of US Forecast (9:30 a.m.)

Occidental expects daily US oil production to grow by 500,000 barrels this year, almost 20% lower than the official government forecast.

About 80% to 90% of that output increase will come from the sprawling Permian Basin of West Texas and New Mexico, according to Fred Forthuber, president of the Occidental subsidiary that oversees pipelines and marketing of crude and natural gas. Occidental’s estimate stands in contrast to the Energy Information Administration’s 600,000 barrel-a-day growth forecast for 2023.

Europe Prepares for a Winter Without Russian Gas (9:10 a.m.)

The next winter in Europe is expected to be difficult because the continent will go into the season without any supplies from Russia, Eni SpA CEO Claudio Descalzi said. For the current winter season, the region still counted on Russian supplies that were shipped through mid-2022 before they were cut off as the war in Ukraine escalated.

Norway is already producing natural gas at maximum capacity, Equinor ASA CEO Anders Opedal said. The company, which has stepped up production to meet the country’s needs, says that if gas demand rises due to a severe winter, Norway would need to curtail demand and boost imports.

Exxon Says EU Windfall Tax Hurts Green Efforts (9:07 a.m.)

Exxon’s CEO slammed Europe’s windfall profit tax on oil and gas producers, saying it drives away investment and undermines energy transition efforts.

The EU slapped the new tax on oil companies last year after Russia’s invasion of Ukraine caused fuel prices to skyrocket, squeezing consumers already enduring surging inflation.

Key Speakers At CERAWeek 2023
Darren Woods Photographer: F. Carter Smith/Bloomberg

The tax would wipe out years of profit from recent refining investments, and means Exxon plans to pull back future spending on the continent in favor of the US, Darren Woods said. The CEO also criticized “ideologues” who want to get rid of oil and gas for driving the climate debate.

Such policies have created unintended consequences, such as countries burning more emissions-intensive coal to meet consumers’ energy needs when supplies fell short after the Ukraine war started, Woods said.

“What we saw in Europe should be a wake-up call,” he said.

Crude Processors Adding Hydrogen, Carbon Capture Tech (8:30 a.m.)

A number of major crude processors on the US Gulf Coast are looking to reconfigure refineries to incorporate hydrogen and carbon capture technologies, said Justin Jackson, senior vice president of process and chemicals at Wood, an engineering and construction company.

A lack of expertise in investment and technology has created a gap in the world’s carbon reduction ambitions and ability to carry it out, he said.

“We’ve hired everybody in North America between us and the [project] owners,” Jackson said on the sidelines of CERAWeek.

National Oil Companies Say They’re Turning to Natural Gas (8:30 a.m.)

National oil companies in China, Kuwait and Nigeria are increasingly focusing on producing natural gas over oil, officials from the state-owned entities said in a panel discussion, favoring gas as a cleaner bridge fuel during the energy transition.

Nigeria’s energy production mix currently is 70% oil and 30% gas, Bala Wunti, NNPC Ltd’s chief upstream investment officer said, but the country wants to flip those production numbers. Kuwait is also looking to increase its gas production, Bader E. Al-Attar, managing director with Kuwait Petroleum Corp. said. China plans to invest more in upstream natural gas production, too, said Zhen Wang, an energy economist with the national oil company, CNOOC Energy Economics Institute.

All said they think using carbon capture and sequestration is key as their countries continue growing production.

International Buyers Want US Exports to Replace Russian Supply (8:20 a.m.)

The Port of Corpus Christi exported about 70 million barrels of oil in December alone, said Sean Strawbridge, the CEO of the Texas oil hub.

International buyers are increasingly seeking US crude grades such as West Texas Intermediate and West Texas Light as a replacement for Russian Urals oil, added Occidental’s Forthuber.

Panelists said that crude exports out of the US Gulf Coast are likely to stay strong, as infrastructure capacity currently exceeds projected growth in production. Exports of natural gas liquids such as propane and ethane may face logistical constraints over the next five years, but those could be relieved by repurposing some crude assets to carry NGLs instead, said Corey Prologo, director of North America Oil Trading for commodity trading giant Trafigura.

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