From: Douglas Grandt answerthecall@mac.

com
Subject:Wall Street Journal got it right ... and wrong!
Date:July 29, 2018 at 10:04 AM
To:Darren W. Woods Darren.W.Woods@ExxonMobil.com, William (Bill) M. Colton William.M.Colton@ExxonMobil.com,
Jeffrey J. Woodbury jeff.j.woodbury@exxonmobil.com, Suzanne M. McCarron Suzanne.M.McCarron@ExxonMobil.com,
Max Schulz max.schulz@exxonmobil.com
Cc: Suzanne Cunningham (Senate ENR-R) Suzanne_Cunningham@energy.senate.gov, Brian Hughes (Senate ENR Ctee-R)
Brian_Hughes@energy.senate.gov, David Poyer (Senate ENR-D) david_poyer@energy.senate.gov,
Travis Lumpkin (Sen. Cantwell) Travis_Lumpkin@cantwell.senate.gov, Michaeleen Crowell (Sen. Sanders)
Michaeleen_Crowell@sanders.senate.gov, Katie Thomas katie_thomas@sanders.senate.gov, Sarah Vorpahl
Sarah_Vorpahl@sanders.senate.gov

Wall Street Journal got this much right:

X on Oil — Oil & Gas won’t live forever
X on Capex — then X on the oil industry
X on Financial Viability without growth
X on Public Interest, it’s a conundrum
X on National Interest, a CONUNDRUM
X on ‘Oil Independence' and ‘Dominance'

Wall Street Journal totally got this wrong:

Claiming the Gulf has vast oil reserves
4 billion Gulf barrels is a 45-day supply

NOW READ THIS! W.S.J. FILLETS YOU!

.

REVEAL WHAT IS YOUR ENDGAME

As Oil Industry Recovers From a Glut,

a Supply Crunch Might Be Looming
Dearth of investments in oil projects mean a spike in prices above
$100 could be on the horizon
By Sarah Kent and Georgi Kantchev | July 28, 2018 | Bit.ly/WSJ28July18

Crude across the globe is being used up faster than it is being replaced,
Crude across the globe is being used up faster than it is being replaced,
raising the prospect of even higher oil prices in the coming years.

The world isn’t running out of oil. Rather, energy companies and petro-states—
burned by 2014’s price collapse—are spending less on new projects, even
though oil prices have more than doubled since 2016. That has sparked
concerns among some industry watchers of a massive price spike that could
hurt businesses and consumers.

The oil industry needs to replace 33 billion barrels of crude every year to
satisfy anticipated demand growth, particularly as developing countries like
China and India are consuming more oil. This year, new investments are set to
account for an increase of just 20 billion barrels, according to data from Rystad
Energy.

The industry’s average decline rate—the speed at which output falls without
field maintenance or new drilling—was 6.3% in 2016 and 5.7% last year, the
Norway-based consultancy said. In the four years before the crash, that
decline rate was 3.9%.

Production in nonshale oil fields outside of the Organization of the Petroleum

Exporting Countries isdeclining faster.

Any shortfall in supply could push prices higher, similar to when oil hit nearly
$150 a barrel in 2008, some industry participants say.

“The years of underinvestment are setting the scene for a supply crunch,” said
Virendra Chauhan, an oil industry analyst at consultancy Energy Aspects. He
believes a production deficit could come as soon as the end of next year,
potentially pushing oil above $100 a barrel.

Once, market participants worried that supply would peak. Now, they talk
of vast oil reserves underground.

The Gulf of Mexico, for instance, holds roughly 4 billion barrels of proven
reserves, according to 2016 data from the U.S. Energy Information
Administration. But new projects generally require billions of dollars of
investment and years of development. BP PLC’s $9 billion Mad Dog 2
development in the Gulf of Mexico isn’t expected to start production until 2021,
despite getting the green light in 2016. Such deep-water projects take an
average of 3½ years and roughly $5 billion to go from approval to production,
according to consultancy Wood Mackenzie.
The industry has a record of boom-bust spending that can lead to big price
swings.
.
Right now, companies are cautious after a period of profligate spending before
the 2014 crash led to years of painful restructuring. Even as oil markets
recover, Big Oil remains under pressure from investors to show it can
maintain financial discipline and deliver on promises to improve returns. While
production is still growing at many companies, they have been cautious about
commissioning new projects.
.
“We will have to go to higher investment levels than we’re seeing at the
moment,” Royal Dutch Shell PLC Chief Executive Ben van Beurden said
Thursday. “My hope is still that we can avoid a real supply crunch.”
.
Oil-industry investments fell 25% in 2015 and 2016, according to the
International Energy Agency. Capital expenditure was flat in 2017 and early
data suggests a modest rise in 2018, despite prices rising around 30%.
.
“When you halve your capital expenditure, it’s hard for this not to have
an effect,” said Martijn Rats, global oil strategist at Morgan Stanley. The bank
predicts that supply shortages, among other factors, will push Brent—the
global oil benchmark—to $90 a barrel at the start of 2020. Its bull case projects
$105 a barrel.
.
A host of other factors are dampening new production. Among the world’s
biggest oil-producing nations are Venezuela, Iran, Libya and Nigeria, which
have struggled to maintain output because of a range of economic, political
and technical factors.
.
Concerns over a possible transition away from fossil fuels are also hanging
over executives. BP and Shell are moving toward producing more natural gas
than oil, anticipating a surge in demand for the lower-carbon fuel. Adding to the
industry’s supply issues, transport problems in Canada and the U.S. have led
to bottlenecks.
.
Veteran oil investor Pierre Andurand is betting on a multiyear bull run in oil. Mr.
Andurand said Brent could hit highs of $100 a barrel this year and top
$150 by the early 2020s. Others forecast more modest price gains but still
believe a supply deficit will raise prices.
.
To be sure, strong demand for crude could falter if the global economy
slows. On the supply side, some large new projects have been commissioned,
potentially signaling appetite for more investment, and companies are driving
potentially signaling appetite for more investment, and companies are driving
down project costs allowing them to do more for less. Likewise, soaring
production from U.S. shale fields has offset underinvestment and declines
elsewhere. But the shale industry’s growth is expected to peak in the early to
mid-2020s, according to industry experts.

To avoid a longer-term price spike, companies need to start investing

now, and not just in shale, analysts say.

Without those fresh investments, decline rates globally are expected to

continue to worsen as companies finish working through projects financed
before the crash.

In parts of Brazil and Norway, decline rates are already above 10-15%, Energy
Aspects’ Mr. Chauhan said. Output from Venezuela’s aging fields fell by more
than 700,000 barrels a day over the past year, according to the IEA. In June,
Angola’s output hit a 12-year low, while Mexico’s production is down nearly
300,000 barrels a day since the middle of 2016, despite efforts to open up the
industry and reverse declines, the IEA said.

“Nobody is really stepping in,” said Doug King, chief investment officer of
the $140 million Merchant Commodity hedge fund. “People still got burned by
the downturn.”

https://www.wsj.com/articles/as-oil-industry-recovers-from-a-glut-a-supply-crunch-might-be-
looming-1532775605