Shell CEO Says Cutting Oil and Gas Production Is Not Healthy
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“We’ve seen of course through 2022 the fragility of the energy system,” Sawan said. “To see prices start to skyrocket, that’s not healthy for anyone, particularly consumers.”
But at the same time, CO2 emissions rose to a record last year, meaning the world will need to move even faster if it wants to achieve its climate targets and avoid the worst impacts of global warming. To do that would require a steep cut in demand for oil and eventually gas as well.
Under Sawan’s predecessor, Ben van Beurden, Shell had a target to reduce oil production by 1% to 2% per year, a pace that it’s more than achieved. Much of those declines are attributed to a reconfiguring of Shell’s production portfolio to shed lower-margin assets. That approach will continue under Sawan, who’s committed to boosting value for shareholders.
“We focus on value over volume,” Sawan said. “So it’s not how many barrels we’re producing, but the margin that we extract from the barrels we produce.”
The war in Ukraine has allowed major oil companies to voice the painfully obvious truth that oil use is going nowhere. Such is the strength of the anti-carbon lobby groups, that any claim by major oil and gas producers that they are providing a useful life-affirming product were drowned out. The energy emergency in Europe highlighted in stark terms the cost of doing without oil and gas.
That does not mean it is going to be easy to green light investment in new supply. In fact the bullish case for offshore drillers is that offshore supply is less carbon intensive than onshore. That has helped to reignite interest in several of the drillers than exited bankruptcy proceedings last year.
The spread between the 1st and 2nd month Brent crude contracts is back in backwardation. Changes of direction in the spread tend to occur during changes of direction for front-end prices. That supports the view crude oil prices are unlikely to fall below $80 and could recover on stronger global demand growth.
EOG Resources dropped through the psychological $120 area last week and popped back above it today to signal a failed downside break.
Natural gas also continues to rebound from its deep oversold condition. Supply destruction is underway as companies cancel drilling programs and demand is recovering as US export facilities come back on line.