The American energy industry has been enjoying its rebound from the pandemic, but that doesn’t mean there is any assurance that the good times will last, says Chevron Chair-CEO Mike Wirth of San Ramon, Calif.
“It’s a market that is not stable,” Wirth said in Chevron’s second quarter call report. “It’s not in equilibrium right now. Inventories are quite low, demand is still strong and economies seem to be handling it.
“If prices were to move higher, I do think they would start to be a bigger drag on the economy than what we have seen. There is a lot of tension in this market and the supply response is coming.”
Wirth said 2020 brought “a contraction unlike anything I have seen in my lifetime.”
“We had to constrain activity because there was no sense in producing more oil when the world needed a lot less,” he said. “It wasn’t clear at the time how long that might last and how deep it would be and so every segment of the industry responded.”
Noting that supply always changes more slowly than demand, Wirth said the demand has not fully recovered because China and other nations are still in COVID lockdowns at various times.
“Even with that, demand has responded more quickly than supply can match it,” Wirth said. ”Then you overlay a lot of other issues. The independent exploration and production companies are feeling more of an obligation to return cash to their shareholders and some of the big integrated companies have reprioritized new energy versus traditional energy and have indicated they intend to shrink rather than grow their oil and gas production.
“Then you go around the world to the national oil companies and everybody’s got a little bit different situation.”
Wirth said Chevron is pursuing a major project in Kazakhstan “and other companies around the world have got things they’re doing as well, but it just comes in at a different pace than the demand has moved.
“We’re in a market that’s tight right now, that has a lot of uncertainty and that is not likely to resolve itself in the near term.”
Wirth said President Biden’s release of oil from the Strategic Petroleum Reserve in an attempt to lower the price of gasoline for consumers “can do a certain amount to calm those markets, but over time it’s a cyclical business.”
“One of the lessons of history is, just as the bad times don’t last forever, neither do the times when prices are strong,” Wirth said. “We can’t start to believe they’ll always be like this and I think in the relative short term the tensions are likely to remain.”
Chevron Vice President-Chief Financial Officer Pierre Breber said the company “delivered another quarter of strong financial results with a return on capital expenditure of more than 25 percent, the highest since 2008.”
“Special items this quarter include asset sales gains of $200 million and a $600 million charge to terminate early a long-term liquefied natural gas re-gas contract at Sabine Pass,” Breber said in reference to an area near Port Arthur on the Texas Gulf Coast.
