Energy Meeting Convenes Under Cloud
February 21 2016 - 8:10PM
Dow Jones News
Saudi oil minister Ali al-Naimi will join top North American and
European drillers in Houston this week to debate how long the oil
bust could last and how geopolitics are reshaping the energy
world.
Hundreds of oil-and-gas executives and world leaders are
expected to gather for IHS CERAWeek, the annual confab in the
world's energy capital, which routinely draws influential players
across the sector.
But this year's event is taking place under a dark cloud as
persistently low oil prices continue to exact a punishing toll on
the industry.
Daniel Yergin, vice chairman of energy research at IHS, will
moderate five days of events spanning discussions on oil, natural
gas, renewable power and politics. He said executives are obsessed
with two big questions: how to stay competitive in a low oil-price
world and how fast U.S. crude production will decline.
"That's what people really want to hear," Mr. Yergin said. "It's
a day of reckoning now."
The capacity of U.S. shale producers to pump ever more oil
helped create a global glut of crude that has pressured prices from
more than $100 a barrel in the summer of 2014 to around $30
today.
Mr. al-Naimi's presence lends a particular gravity to this
year's conference, because he hasn't attended since 2009—when the
world was in the midst of a global recession—and oil markets tend
to react strongly when he speaks.
The powerful oil minister of Saudi Arabia is credited with
helping exacerbate the collapse in crude prices. The kingdom has
refused to curb its oil output for more than a year, though in
recent days Mr. al-Naimi has signaled a willingness to coordinate
with Russia and other countries to freeze oil production at current
levels.
The turmoil roiling the oil world has left hundreds of oil and
gas producers world-wide at risk of bankruptcy, even as they
continue to slash budgets and lay off thousands of workers,
sacrifices that have only accelerated in recent weeks.
More than 300,000 energy workers in oil patches around the globe
have been let go in the past 20 months since crude prices first
started to fall, according to the latest statistics from Graves
& Co., a Houston-based consulting firm. The 70% drop in oil
prices has brought new drilling nearly to a halt in some areas.
U.S. energy producers carved up their budgets last year, and
they've been making even deeper cuts this year, according to
company filings analyzed by The Wall Street Journal. More than two
dozen companies have axed their capital spending by $25 billion so
far this year, which is nearly half what they spent last year.
A critical issue for American oil drillers, Mr. Yergin said, is
whether the steep spending cuts made in recent weeks will finally
cause a significant decline in the volume of oil the U.S.
pumps.
The latest federal estimates show American crude production
remains stubbornly high, above 9 million barrels a day, up from
about 5.5 million barrels a day in 2010.
If America stopped pumping so much crude, oil prices could begin
to rebound—Mr. Yergin said prices in the $40-to-$50 range would be
reasonable—despite percolating angst about a broader economic
slowdown and lower fuel demand coming from China.
As in previous years, IHS CERAWeek is drawing a number of
foreign leaders, including Enrique Peñ a Nieto, president of
Mexico, which is in the middle of revamping its energy sector to
allow more foreign investment. And despite the low price of fossil
fuels, renewable energy is still on the agenda, thanks to momentum
following the recent climate talks in Paris and recently renewed
solar and wind subsidies in the U.S.
The chief executives of several major U.S. shale players,
including Pioneer Natural Resources Co. and ConocoPhillips, are on
the lineup to talk about American production, while
others—including Continental Resources Co.—decided not to attend
given the conference's hefty price tag and the depth of the oil
bust.
David Hager, chief executive of Devon Energy Corp., which
announced last week it would let go of 1,000 employees, is
anchoring a panel about the future of American oil and gas. He
recently told investors that the steep cuts, while painful, were
necessary to survive.
"Our top priority in this environment is to protect the balance
sheet," he said. "There are no sacred cows around here."
Write to Erin Ailworth at Erin.Ailworth@wsj.com
(END) Dow Jones Newswires
February 21, 2016 19:55 ET (00:55 GMT)
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