HOUSTON — Coming off the worst bust in decades, oil industry executives — particularly those doing business in Texas — are resoundingly upbeat about the business thanks to higher prices, new cost-saving technologies and projections of growing global demand.
That’s been the overwhelming sentiment at CERAWeek, the famed annual energy conference put on by IHS Markit where Saudis, shale cowboys and everyone in between descend on Houston to talk themselves up, feel each other out, and — at least lately — console each other in a time of great uncertainty for the industry amid the rise of renewables and a worldwide push to slash planet-warming carbon emissions.
“It’s just a fantastic time to be in the energy business in the United States,” said Cynthia Walker, a senior executive at Houston-based Occidental Petroleum, echoing no fewer than a half dozen other American industry leaders who spoke at the gathering, which ends Friday.
The country is going to be a dominant force not just in crude, she said, but also natural gas and petrochemicals.
Occidental is the largest oil producer in Texas' Permian Basin — the hottest oilfield in the United States and a key reason for the industry’s upbeat outlook.
The ancient, hydrocarbon-rich seabed that spans West Texas and southeastern New Mexico has been a focal point of escalating domestic energy production and will remain so for the foreseeable future, according to industry executives and analyst forecasts.
Two out of three oil rigs deployed in the past 18 months in the United States were in the Permian, according to a report released this week by the International Energy Agency, with output expected to more than double by 2023. Major players including ExxonMobil are investing billions in the region.
Because of the type of crude produced there — light and low-sulfur and, thus, not as easily processable by Gulf Coast refineries, which are designed to process heavier crude — almost all of it will be exported to Europe and Asia, where demand is growing. That will position Corpus Christi to be the main oil exporting hub on the Gulf Coast, according to the IEA report, which also says the United States will soon become one of the top oil exporters.
That stream of energy — made possible in 2015 after Congress lifted a longtime ban on most crude exports — is expected to satisfy some 60 percent of projected growth in global oil demand through the next five years, IEA Executive Director Fatih Birol said this week.
“We have the golden goose right before us,” said Timothy Dove, CEO of Irving-based Pioneer Natural Resources, another large Permian operator.
Unemployment in Midland is “probably at a negative number,” he joked, saying the main challenge has been finding employees — particularly truck drivers.
Even amid the bust in 2016 — the year oil prices bottomed out in the mid-$20s per barrel — many Midlanders were optimistic about a comeback, citing the geologic potential of the Permian. Before the advent of hydraulic fracturing and horizontal drilling, the basin had been considered mostly tapped out.
Thanks to those and other recent improvements in drilling technology that have improved efficiency and lowered costs, many Permian producers claim they could easily weather those kinds of low prices now; Dove said the company could break even at a price as low as $15 per barrel. That ability will help break the boom-bust cycle, he said.
Still, while no one seemed to be questioning the promise of the Permian, some key figures cast doubt on the potential of U.S. shale production as a whole and its ability to meet growing global demand.
Shale trailblazer Mark Papa, who made his name as head of EOG Resources Inc., told a panel audience that the amount of total U.S. oil production growth is "likely to disappoint" over the next few years because the most productive portions of the country's two other major shale plays, the Bakken Formation in North Dakota and the Eagle Ford in South Texas, have been largely tapped out.
That means "you'll have to rely primarily on the Permian to carry the load," he said. And "the Permian will be quite powerful but not enough to propel the total U.S. production to the levels that people expect."
Frenetic oil production in the Permian and shale plays across the United States beginning about a decade ago was widely credited for a price collapse that began in 2014. OPEC — the Organization of the Petroleum Exporting Countries — had tried to compete with shale drillers but, along with Russia and some other producing countries, eventually struck an agreement to cut production through the end of this year. That has helped reduce a global supply glut and boost prices to more than $60 per barrel.
A large OPEC delegation was present at the conference; they met with American shale drillers and officials from other non-OPEC countries at a much-hyped private dinner on Monday evening. OPEC Secretary General Mohammad Barkindo, of Nigeria, who participated in several conference panels, would not say whether OPEC would prolong production cuts.
If they stay in place, the IEA projects that the United States will surpass Russia as the world’s largest oil producer by the end of the year, with the Permian playing a central role.
Escalating production has raised fears of bottlenecks as pipeline companies and other infrastructure builders race to keep up.
“If you’re a pipeliner, it doesn’t get better than this,” said Kelcy Warren, the CEO of Dallas-based Energy Transfer Partners and a Texas Parks and Wildlife commissioner. He was speaking during a conference panel on Wednesday where he and the chiefs of two other major midstream companies condemned recent opposition to pipeline construction.
Warren, whose company was behind the controversial Dakota Access pipeline project, said opponents who had admitted to drilling through the pipeline should be “removed from the gene pool,” while Russ Girling, the CEO of TransCanada Corporation, the company behind the controversial Keystone XL pipeline project, described the opposition as a small group of extremists intent on keeping oil in the ground.
The majority of pipeline laid in North America through 2020 will be in West Texas to handle "soaring" output, according to the IEA report.
Earlier in the day, Mark Brownstein, vice president of the Climate and Energy Program at the Environmental Defense Fund, which appeared to be the only environmental group to present at the conference, questioned the need for a bunch of new pipelines given the rapid expansion of renewable energy.
But in stark contrast to sentiments at the state Capitol, industry executives — particularly Europeans, but Americans, too — spoke about climate change as a real threat that must be addressed. They vowed to reduce planet-warming carbon emissions, with some, like Royal Dutch Shell CEO Ben van Beurden, describing it as a moral imperative and others describing it as something consumers are demanding.
Several executives, particularly from the power sector, raved about their Teslas and the rise of electric vehicles, which were another major conference topic. Sessions involving renewables were almost always standing-room-only.
But oil executives made it clear that fossil fuels will remain king for now — van Beurden said it will be the core of Shell’s business “for decades to come.”
Former Texas Gov. Rick Perry, who now heads the U.S. Department of Energy under President Trump — and whose name was barely uttered during the conference — flipped the morality argument on its head, describing efforts to curb fossil fuel production for the sake of environmental protection as "immoral" because of the potentially devastating economic impact to poorer countries. He also stressed that long-sought-after energy independence is on the horizon for the United States.
Natural gas executives emphasized that they, too, are here to stay — and have a big role to play in reducing carbon emissions. That fossil fuel is far cleaner burning than coal or oil and is incredibly abundant in the wake of the shale revolution.
Alternatives won’t be able to meet energy needs for some time, said Amin Nasser, the head of Saudi Aramco, Saudi Arabia’s state-owned oil company, in a speech.
“I’m not losing any sleep over peak oil demand," he said.
Disclosure: The Environmental Defense Fund, Exxon Mobil Corp. and TransCanada have been financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.
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