Exxon boss tells peers,
Saudis their oil supply crunch bet is wrong
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[October 20, 2016]
By Ron Bousso and Karolin Schaps
LONDON
(Reuters) - Exxon Mobil's boss Rex Tillerson told Saudi Arabia's energy
minister on Wednesday that fears of a new global oil supply crunch were
exaggerated as the U.S. oil industry was adapting to the low price shock
and was set to resume growth.
The remarks by Tillerson, who is due to retire before March next year,
about the resilience of the U.S. oil industry come as the Saudis have
effectively abandoned their strategy to drive higher cost producers out
of the market by ramping up cheap supplies from their own fields.
More than two years of downturn that saw oil prices halve to around $50
a barrel today after a boom in U.S. shale oil production have led to a
sharp decline in investment.
But Tillerson, who heads the world's largest listed oil and gas company,
said that shale oil producers' resilience in cutting costs to make some
wells profitable at as low as $40 a barrel means that North America has
effectively become a swing producer that will be able to respond rapidly
to any global supply shortage.
"I don't quite share the same view that others have that we are somehow
on the edge of a precipice. I think because we have confirmed viability
of very large resource base in North America ... that serves as enormous
spare capacity in the system," Tillerson told the Oil & Money
conference.
"It doesn't take mega-project dollars and it can be brought on line much
more quickly than a 3-4 year project."
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"Never bet against the creativity and tenacity of our industry," he
said.
His stance contrasted with that of Saudi Arabia's Energy Minister Khalid
al-Falih, who minutes earlier warned the same event that the sector
faces challenges due to the drop in investment.
"Market forces are clearly working. After testing a period of sub $30
prices the fundamentals are improving and the market is clearly
balancing," Falih said.
"On the supply side, non-OPEC supply growth has reversed into declines
due to major cuts in upstream investments and the steepening of decline
rates," the minister said.
"Without investment, that trend is likely to accelerate with the passage
of time to the point that many analysts are now wending warning bells
over future supply shortfalls and I am in that camp."
Falih said that OPEC's plan to freeze or even cut production along with
several leading producing countries, including Russia, will help reduce
a huge overhang of supplies and stimulate new investments in the sector.
Saudi Arabia, has changed its course this year and decided to support
production cuts following two years of refusal to do this in order to
win the market share back from U.S. shale producers.
Tillerson's remarks about the resilience of U.S. supply shone on a fresh
light on Saudi calculations of the impact of lower prices, which Riyadh
orchestrated in 2014, on the North American oil industry.
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![](../images/102016pics/busine52.jpg)
ExxonMobil Chairman and CEO Rex Tillerson speaks during the IHS
CERAWeek 2015 energy conference in Houston, Texas April 21, 2015.
REUTERS/Daniel Kramer/File Photo
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NO PRICE BLOW OUT
Tillerson said that while U.S. shale production has dropped recently,
the declines have largely stopped.
"I don't necessarily agree with the premise that there is a more steep
decline to come (in U.S. shale), in fact that are still some levels of
uncompleted wells that can be brought on."
"It is difficult for me to see a big supply press out there, it is
difficult for me to see a big price blow out, there are too many
elements in the system that will temper that," Tillerson said.
"I don't necessarily have the view that we are setting ourselves up for
a big crunch within the next 3, 4, 5 years."
Echoing the Saudi minister, Patrick Pouyanne, the chief executive
officer of French oil and gas company Total, expected supplies to fall
short by 5 to 10 million barrels per day by the end of the decade after
investments in the sector dropped from $700 billion two years ago to
$400 billion this year.
"We are today facing a situation where we do not invest enough... this
is not enough to prepare the future supply… Without investment, the oil
industry will not be able to offset the natural 5 percent natural
decline of fields and meet demand growth of even 1 percent."
"I know that the shale oil industry is very innovative and they have cut
costs and adapt but we won't be able, if we continue this way, to fill
the gap," Pouyanne said.
He said that Total will be able to balance its capital spending of up to
$17 billion with oil at $55 a barrel next year.
(Editing by William Hardy and David Evans)
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