The agenda started on a somewhat political note (more on that later) but soon turned squarely to the opinions, insights and strategies of key leaders of the global oil producers.
To my mind, Total Oil’s CEO, Patrick Pouyanne, stole the show. In addition to being entertaining and quietly charismatic, he had some extremely interesting and important things to say. CERAWeek impresario Daniel Yergin also knows Pouyanne, and knows how to draw him out. The result was a riveting tour of everything going on across the industry.
In a wide-ranging conversation, Pouyanne started out talking about energy diversification and transformation. His first point, and a key one of course to explain Total’s strategy, is that Total is becoming more a “gas and oil” company than an oil and gas company. He was referring to the growing importance of natural gas, and LNG specifically, to Total’s business. Referencing Total’s impending closure of a deal to purchase Maersk Oil in the North Sea (which he said will close this week), he indicated that Total is moving to become No. 2 globally in LNG.
But then he talked about other energy sources. Yergin got Pouyanne to discuss the electric car he’s just purchased for his family. “Very expensive” and “small,” he mentioned. But his point was, I think, that unlike some of the other industry leaders who stated peak oil demand is “nowhere in sight” and that it is all about lowering cost of production to $5 to $10 per barrel, Pouyanne emphasized that he is looking at the big picture, to make sure Total is positioned for the future.
After an interesting aside, though, he talked about Total’s foray into batteries (energy storage systems), and indicated, candidly, that Europe will have a terrifically hard time keeping up with China’s rate of innovation in areas such as batteries and solar technology. (“China could be an important global accelerator, driving innovation in battery technology.”)
Pouyanne emphasized that after all his assessments, the picture on future oil demand and on the notion of “peak oil demand” is very murky and uncertain. He stated that there are “many scenarios” that he’s examined, all based on different economic and policy futures, and there is no clear answer on all that. Despite big changes in “mobility” driven by electric cars, Uber and the like, Pouyanne and OPEC (see below) see oil and gas staying dominant for at least two decades.
OPEC and IEA
Pouyanne’s remarks were later reinforced by the head of OPEC, Mohammad Barkindo, and the head of the IEA, Fatih Birol. Barkindo and Birol painted the picture of the analysis and forecasting OPEC and IEA have performed, with some degree of cooperation. Separately and together they are both convinced that “peak oil demand” is certainly further out than 2030 or 2040. We will see. In many conversations, though, I heard organizations talking about reinventing their refining organizations to be demand-driven rather than solely margin-driven.
But really, one of OPEC’s key messages, and an important one to them, is the industry-wide concern that there is under-investment in upstream today, which could lead to shortages in the future. This led to some other conversations, which I won’t go into in detail here, about the importance of embracing sustainability, because the perception of non-commitment by the oil industry to that is a key curtailing factor restricting industry access to capital. So OPEC and IEA (and the Norwegians at dinner) are focusing in on technology solutions driving down cost and increasing feasibility of carbon capture and storage.
LNG Growth Rates
Pouyanne, though, talked at length on the dynamics of the LNG market. And that echoed remarks by other keynote speakers throughout the afternoon. Namely, that the LNG market will continue to grow. He made several key points guiding Total’s strategy:
The LNG market will continue to grow.
It is a highly capital-intensive business, so Total can take advantage of its strong capital position to gain an increasingly strong position in this growth area (John Hess echoed a similar point, later in the afternoon).
It is about optimizing the logistics.
Contracts will shorten, so optimizing monetizing the demand will also be a winning component.
In this environment, there will be a premium on flexible operations and minimizing capital cost. (To learn more, attend our upcoming seminar on LNG in Houston March 20.)
Short-Cycle Hydrocarbon Plays
There was also an interesting discussion on short-cycle versus long-cycle upstream investment (this was a theme, by the way, that came up in several times). Total makes the case that short-cycle can also be about the way that upstream projects are developed and contracted, so that the entire ecosystem becomes flexible enough to stop or start on a dime, making it a low-risk, short-cycle play.
Total’s Recipe For Success
Pouyanne says that he, and Total, have learned some important lessons during the downturn. Here are Pouyanne’s four keys to success in today’s market of $50-$60 per barrel oil:
Be excellent in what you can control (things like safety and quality of execution).
The integrated model has a lot of advantages. Companies like Total have had the advantage of keeping hold of the integrated model, from wellhead to consumer.
Size matters. As the market weakened, with lower oil prices, there were fewer competitors for good opportunities. Total was able to take advantage of their size and capital strength during low oil prices.
You need financial resources to take advantage of a low cycle.
And the interesting corollary of Pouyanne’s strategy is the ability to invest in potentially risky areas. While Sir John Scarlett, former head of MI5, talked about the global risks presented by Syria (Iran) and North Korea, with Angela Stent talking about risks in Russia, Total makes the strong case that their size and investment power enables them to make good bets in Iran and Russia, while managing the risk due to the size of their full portfolio.
I left that session feeling inspired by Patrick’s vision and confidence, engaged by his humanity and insight, and renewed in the power of the creativity and technology innovation of industry leaders such as Total.
If Pouyanne stole the show, John Hess, son of the founder of Hess Oil, and current CEO, certainly punctuated it. Hess forcefully and convincingly told the story of the need for balance between short-term and long-term plays in upstream, to satisfy world demand. John is definitely consistent. Last year he pushed the same message. This year he was able to do so even more convincingly and evidence-based.
He talked about the ExxonMobil-Hess Guyana field discoveries and development, which he has hedged with short-term shale plays in North America. But as with Total, his story was about the discipline and foresight that enabled him to have access to the capital required to take advantage of the low-market opportunities. John Hess is compelling, and always inspiring. He is a great positive advertisement for the oil industry.
Oh, and the Political Angle
The day started with two sessions that looked at the angle of U.S. politics and how it is impacting the oil patch. Industry executives gave a strong pitch for the value of dismantling of regulations and the impact of the U.S. corporate tax cut on upstream oil momentum. Daniel Sullivan, the U.S. Senator from Alaska, sang the praises of the federal removal of prohibition of drilling in the ANWR.
While that was a theme, equally strong was the chorus from almost everyone Daniel Yergin interviewed, warning about the negative impacts of tariffs on oil and gas (the industry depends on a variety of grades of steel not manufactured and/or scarce in the U.S.), as well as concerns about impacts of trade wars impeding global flow of commerce. Mexico’s Finance Minister Jose Antonio Gonzalez Anaya was particularly insightful and very direct (in a nice way) on the topic.
And sprinkled throughout, in almost every presentation, was the mention of technology discontinuities and the advantages that will bring to industry. In point of fact, it was actually Andrew Liveris, chairman and CEO of DowDuPont, not even from the upstream industry, who was able to make the most visionary and compelling case for the absolute importance of the ability to employ data through AI and machine learning, to take industry to new productivity levels. And, as Liveris said insightfully, “The best part is that it is OUR data…”
To learn more about how advanced technology helps organizations gain new insights for operational excellence from their data, read this white paper on upstream digitalization.
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