Higher Oil Prices Put Smiles on the Faces of Energy Executives at Davos
January 20 2017 - 10:09AM
Dow Jones News
By Elena Cherney
DAVOS, Switzerland--A recovery in oil prices has cheered
energy-industry leaders gathered this week for the annual meeting
of the World Economic Forum, with many confident that demand is
finally better matched with supply after a two-year price
collapse.
"Everybody thinks the worst is over," said Emma Marcegaglia,
chairman of Eni SpA, Italy's biggest oil company. "The mood is
completely different compared with last year. The mood is
better."
To support their faith in the recovery, several industry leaders
cited mounting evidence that the 24 countries that agreed to lower
production late in 2016 are complying with the pledges they
made.
Executives are also closely watching U.S. shale output, which
could limit price gains if production rebounds too much. A report
by the International Energy Agency released Thursday forecast that
shale volumes would increase by an average of 170,000 barrels a
day.
The resurgence of shale production means that even though prices
have stabilized for now, energy markets are headed for more, not
less, volatility, the IEA's executive director, Fatih Birol, said
in an interview.
"The name of the game is the increasing volatility of oil
producers," Mr. Birol said. Brent crude rose 1.7% to $55.05 a
barrel with bullish oil-market sentiment buoyed by the latest signs
of waning production.
To guard against the possibility of further price declines,
several executives said they are taking a more cautious approach to
spending and will keep in place cost-cutting strategies adopted
during the downturn.
"We'll be very selective," BP PLC Chief Executive Bob Dudley
said in an interview. "What we don't want to do is lose the
discipline we've built in."
That caution suggests that it may take longer for suppliers and
oil-services companies to benefit.
"You really have a sense of optimism and people want to believe
the recovery is there," said Lorenzo Simonelli, the head of General
Electric Co.'s oil and gas unit. "If I look at it from a supplier
perspective, it's early to say everything's rosy," Mr. Simonelli
said.
In addition to worries about price volatility in the near-term,
longer-term questions about fossil fuel demand growth--including
forecasts that oil demand will peak--played a more central role in
discussions this year, several executives said.
As regulation to combat climate change mounts and alternatives
to fossil fuels become more cost-competitive, more energy companies
are concerned about "what is demand going to look like," said
Daniel Yergin, vice chairman of IHS Market and a longtime energy
analyst. "This is on the mind of everyone in the industry."
Executives are also beginning to talk more openly about how the
carbon intensity of projects influences investment decisions.
For example, BP's Mr. Dudley said that as the company seeks to
be more selective about which projects to sanction, some of the
most carbon-intensive projects, such as Canadian oil sands,
wouldn't meet the bar.
He and others emphasized the role of natural gas in their
business mix as part of moving toward "lower-carbon energy."
Write to Elena Cherney at elena.cherney@wsj.com
(END) Dow Jones Newswires
January 20, 2017 09:54 ET (14:54 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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