The world’s natural gas markets are fundamentally changed for the long term with less dependence on Russia, Chevron Corp. CEO Mike Wirth said Monday.
Wirth was the opening speaker in Houston at CERAWeek by S&P Global. CERAWeek Chairman Daniel Yergin joined Wirth on stage to kick off the week-long conference. The two men discussed how the energy markets have been upended in the past year.
“Clearly Europe’s over-reliance on Russian gas is something that is very clear today,” Wirth said. “And I think the Europeans don’t intend to go back to that. So they’ll accelerate some of their efforts on renewables.
“But the reality is, as you do that, you start to realize that baseload power is very important. There’s been a lot of imports, infrastructure built and more on the way to balance out the growth in renewables with combined-cycle gas power generation…”
The United States is going to “play a big role” given LNG export capacity today and planned into the future. Other small but growing gas resources also are in the mix, including in the Eastern Mediterranean, where Chevron has substantial assets.
‘Beautiful Gas Resource’
The Eastern Mediterranean “is a beautiful gas resource,” Wirth said. “It’s helped to decarbonize Israel’s power grid, which was 100% coal-fired a decade ago and is now somewhere between 70% and 80%. Natural gas-fired air quality is better. Greenhouse gas emissions are much lower. And gas is being exported to neighboring countries Jordan and Egypt.
“And we’re working on potential expansions that could allow us to get gas into Europe as well…I think it’s an area that holds great promise. Obviously, exploration carries a risk, but we’ve got good operating assets today and are cautiously optimistic that we’ll see more of that.
“There’s probably three options” to send liquefied natural gas from the region to Europe, Wirth said.
“One is a pipeline that’s been long discussed and it involves many countries, billions of dollars of capital and is very complex…I don’t want to say it will never happen, but it is probably the most complex proposal.”
The second option is to use existing liquefaction facilities in Egypt that have capacity. Chevron is not a partner in those facilities, so there would need to be commercial negotiations. A third option would be to use floating LNG.
A floating system would be “simpler, because you’d work with the existing partners on the project and one government, rather than two.” It could require “more capital and a little more time to get that done…We’re really evaluating the details of each of those alternatives before we choose one.”
The Eastern Mediterranean “certainly is a significant gas province today,” the Chevron chief said. “I think it’s one that will grow, and we intend to help make that happen.”
It’s difficult to predict with certainty far into the future about energy markets, Yergin noted. However, Wirth said global gas markets would be “structurally changed” for the longest period. “We’ve had now the Nord Stream pipeline…attacked. Even if there was a desire to see it flow, it can’t. As I said, I don’t think Europe intends to go back to their degree of reliance on Russian gas.”
Going forward, Europe will be “competing with Asia for LNG,” Wirth said. “The U.S. is a big exporter and likely will grow. And I think that changes trade flows. It changes pricing mechanisms, it changes project economics globally.”
Energy players were shifting toward major lower carbon energy funding in 2021 – before the invasion. Lower carbon energy systems are paramount, Wirth said. However, energy security has become a bigger priority.
The energy transition “is getting reframed as we get some real experience with the challenges of pushing some of these new technologies forward…The reality is that affordability and energy security actually do matter. So I think the discussion is moving to a more balanced state.”
Wirth said, “we have to be cognizant of the fact that as we go through the changes that people expect to see, a disorderly transition could be painful. It could be chaotic. And we could lose support for the progress that so many want to make…It’s partly what we saw in 2022,” he said, referring to Europe.
Splitting The Difference
Chevron, like many of its peers, is splitting the difference. It continues to pump oil and gas while leveraging its strengths to expand low-carbon solutions.
For example, the legacy Permian Basin leaseholder 10 years ago was producing less than 100,000 b/d of oil there. Last year, output had risen to more than 700,000 b/d. The San Ramon, CA-based major is on its way to producing 1 million bbl from the Permian by 2025, Wirth said.
At the same time, production from the Permian, he said, has an emissions intensity of 13 kilograms of carbon dioxide/boe, “which is less than half our portfolio average, which is less than half of the global average…So this is good for the country, not only from a security standpoint. It’s a low carbon source of energy to meet demands today.”
It’s a similar story in the Denver-Julesburg Basin of Colorado, where Chevron has electrified nearly all of its drilling processes and facilities. Tankless operations have eliminated flaring from drilling.
A company’s value, Wirth said, often is based on “certain business fundamentals, strategic fit, asset quality…Oftentimes, the greatest value comes from the people, and we’ve got some tremendous people who have joined our company…”
Beyond the headlines, Chevron continues to “invest through the cycles,” Wirth explained to the audience. “We’re in a commodity business, and it’s a cyclical business. It has lows and we saw the lowest of the lows in 2020” when the Covid-19 pandemic destroyed demand and pummeled prices.
“It has highs,” he said. “We saw some highs last year. But if you go back over time…you see that this is a story that repeats itself. Sometimes the nuances changed a little bit. But in a cyclical business, you can’t call the peaks. You can’t call the valleys. You need to stay strong through the cycle…
“That means for us a strong balance sheet, a consistent approach to capital investments…make sure that our shareholders are rewarded for their investment in our company. But you can’t size the company for the peaks. And if you only size it for the valleys, you miss some opportunity as well. So you have to really try to navigate through the ups and the downs.”
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March 07, 2023 at 01:38AM
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Europeans 'Don't Intend to Go Back' to Russian Natural Gas, Says Chevron CEO - Natural Gas Intelligence
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