The sudden drop in oil prices is different from cycles in the recent past, said Rex Tillerson, chairman and chief executive of ExxonMobil, during his Tuesday morning keynote speech and discussion at the recently held CERAWeek. This event has been created due to oversupply, but it is met with dwindling demand from the US due to efficiencies, weakened European demand, and less demand from China due to its economic slowdown. “But the North American freight train of supply just keeps coming,” he said. Tillerson offered advice to industry operators from the perspective of a supermajor company that dominates the energy industry from upstream to downstream.
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Tillerson. Image from CERAWeek. |
To wit, the US should focus on exporting liquefied natural gas (LNG), which will increase jobs and support energy production, as well as help lower global greenhouse gases. The US and Canada should continue to build out its infrastructure, he said. Specifically, the Keystone pipeline should be approved and completed. These types of projects, along with other projects, should be permitted in an environment of transparency and more certainty in the regulatory process. Currently, the US regulatory system stifles investment and production, unlike Canada’s policies, he said. Also, the energy market should be allowed to determine the marginal cost of supply.
The energy industry is in a new price environment that will continue for a few years, said Tillerson, and suggested that US operators manage low oil prices the same as it did when shale gas depressed the prices of natural gas. For example, during the time between 2009 and 2010, about 1,200 gas rigs were working to produce about 5.5 Bcf/d of gas at $8/Mcf. Now the industry has less than 300 rigs producing gas at about US$2.50/Mcf, yet, due to efficiencies and cost-cutting practices, many operators can continue to produce at that price point. Those efficiencies should be applied to tight oil, he said. He noted that service companies have already begun to reduce the price of some services.
As an example to global energy companies, Tillerson reminded the audience that while ExxonMobil is operating with a sufficient workforce, that workforce numbers about 50% less people than were employed at the time of the Exxon and Mobil merger. The operation structure is made possible through strategic efficiencies and management of the capital budget, which has been recently reduced by 12%.
Also, more federal lands should be open to exploration, said Tillerson. He referred to the recent Arctic Research Study, which found that most of the U.S. Arctic offshore oil and gas can be developed using existing field-proven technologies. “We need governments to recognize that our advanced technologies and techniques have been thoroughly proven in some of the most delicate ecosystems and harshest conditions on the earth. We have shown it possible to confidently open access to new energy resources and for the public and policymakers to know our industry will work to ensure our footprint is minimized and the environment is safeguarded,” he said.
Daniel Yergin, vice chairman of IHS asked Tillerson what the energy industry will look like a few years from now. “It’ll look different,” deadpanned Tillerson.
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