07.03.2017, 18:01
Hess warns of supply crunch, others less concerned
OREANDA-NEWS. A global oil supply crunch is building up toward the end of this decade as the industry fails to invest in projects amid lower prices, Hess' chief executive John Hess said.
Two years of a down market "have really quashed investment," Hess said on the sidelines of the CeraWeek conference in Houston this week. Crude prices need to be over $60/bl on a sustained basis to start encouraging investment - not just in short cycle projects such as the US shale, but also those that take much longer to be brought on line and that require much higher spending, like deepwater.
"The industry is not investing enough to grow supply to keep up with demand, and we see actually a widening supply and demand gap by 2020," Hess said. "That supply crunch is really building."
Companies are focusing on developing wells to ensure they have a steady cash flow to service debt and ensure their balance sheets do not worsen further.
"While the spotlight is on shale, lights went out on long-cycle projects like deepwater," Hess said. "Shale was the first to go down, deepwater was the last to go down but it has hit rock bottom."
The IEA in its Oil Market Report 2017 also sounded alarm over the medium term supply, as did Saudi oil minister Khalid al-Falih. But other participants at CeraWeek were more sanguine.
The supply gap "does not sound scary to me," assuming US shale production will continue to grow, BP chief economist Spencer Dale said at the conference today. He estimated annual oil demand growth at 1mn b/d in the near term, which he said could come from US shale growth.
And "there are a lot of sources that can come back to the market," according to Adam Sieminski, the former head of the US Energy Information Administration who now heads the energy and geopolitics program at Washington think tank the Center for Strategic and International Studies. He counted Iraq, Iran, Libya, Nigeria and, potentially, Venezuela among producers where output is below capacity as a result of political and other factors but can stage a comeback. "It is really a matter of timing," Sieminski said.
Hess has maintained a balanced portfolio through the downturn, with both US onshore shale and offshore projects, including deepwater. The independent would like to add "a Permian piece" to its unconventional portfolio, but given the surge in property values in the basin, it is yet to find anything that competes with and adds value to its existing acreage that is predominantly in the Bakken in North Dakota.
"We are very fortunate to have plenty to say grace over," Hess said. "We have the Bakken and, in terms of long cycle, we are very fortunate to have one of the world's largest oil discoveries in Guyana."
Amid the uncertain market outlook, Hess' primary focus this year will be to execute its 2017 plan. The independent raised its capital expenditure (capex) budget to $2.25bn this year from $1.9bn last year, part of which will go toward increasing its rig count in the Bakken to six, from two now.
Hess is also counting on two large offshore projects - Stampede in the US Gulf of Mexico and the North Malay basin project in the Gulf of Thailand - to drive growth heading into 2018. Stampede is on schedule for first oil in 2018, while North Malay will start producing in the third quarter of this year. Together they will add a total of 35,000 b/d of oil equivalent (boe/d) of output.
Two years of a down market "have really quashed investment," Hess said on the sidelines of the CeraWeek conference in Houston this week. Crude prices need to be over $60/bl on a sustained basis to start encouraging investment - not just in short cycle projects such as the US shale, but also those that take much longer to be brought on line and that require much higher spending, like deepwater.
"The industry is not investing enough to grow supply to keep up with demand, and we see actually a widening supply and demand gap by 2020," Hess said. "That supply crunch is really building."
Companies are focusing on developing wells to ensure they have a steady cash flow to service debt and ensure their balance sheets do not worsen further.
"While the spotlight is on shale, lights went out on long-cycle projects like deepwater," Hess said. "Shale was the first to go down, deepwater was the last to go down but it has hit rock bottom."
The IEA in its Oil Market Report 2017 also sounded alarm over the medium term supply, as did Saudi oil minister Khalid al-Falih. But other participants at CeraWeek were more sanguine.
The supply gap "does not sound scary to me," assuming US shale production will continue to grow, BP chief economist Spencer Dale said at the conference today. He estimated annual oil demand growth at 1mn b/d in the near term, which he said could come from US shale growth.
And "there are a lot of sources that can come back to the market," according to Adam Sieminski, the former head of the US Energy Information Administration who now heads the energy and geopolitics program at Washington think tank the Center for Strategic and International Studies. He counted Iraq, Iran, Libya, Nigeria and, potentially, Venezuela among producers where output is below capacity as a result of political and other factors but can stage a comeback. "It is really a matter of timing," Sieminski said.
Hess has maintained a balanced portfolio through the downturn, with both US onshore shale and offshore projects, including deepwater. The independent would like to add "a Permian piece" to its unconventional portfolio, but given the surge in property values in the basin, it is yet to find anything that competes with and adds value to its existing acreage that is predominantly in the Bakken in North Dakota.
"We are very fortunate to have plenty to say grace over," Hess said. "We have the Bakken and, in terms of long cycle, we are very fortunate to have one of the world's largest oil discoveries in Guyana."
Amid the uncertain market outlook, Hess' primary focus this year will be to execute its 2017 plan. The independent raised its capital expenditure (capex) budget to $2.25bn this year from $1.9bn last year, part of which will go toward increasing its rig count in the Bakken to six, from two now.
Hess is also counting on two large offshore projects - Stampede in the US Gulf of Mexico and the North Malay basin project in the Gulf of Thailand - to drive growth heading into 2018. Stampede is on schedule for first oil in 2018, while North Malay will start producing in the third quarter of this year. Together they will add a total of 35,000 b/d of oil equivalent (boe/d) of output.
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