Key Takeaways from Chevron CEO: Oil Demand, OPEC+ and U.S. Energy Policy

Mark Green
Posted May 8, 2024

Chevron Chairman and CEO Mike Wirth offered a number of important points in an interview this week with CNBC’s “Money Movers”:

1. Global oil demand is strong and growing

Wirth told CNBC’s Sara Eisen a number of countries’ economies are growing, which is building crude oil demand:

“Demand [is] still pretty healthy. Last year was the highest demand in the history of the oil industry. This year, demand will grow again by probably a million and a half barrels a day, so, a new record. And we see still a healthy economy here in the U.S. China has gotten back on its feet. Europe stabilized. And so, demand continues to grow.”

2. The future path of OPEC+ is unclear

OPEC+ members will meet June 1 to review output allocations. Bloomberg reports the group is expected to extend oil output cuts into the second half of this year, “seeking to stave off a global surplus and shore up prices.” OPEC+ and its partners announced voluntary output cuts in April 2023. The group has been keeping about 2 million barrels per day offline this year, according to Bloomberg. Wirth:

“You know, it's very hard to know what OPEC+ will do. They do have some capacity primarily in a couple of countries right now. And they've been very focused on, you know, stable markets and trying to be sure that we don't see volatility. And frankly, although there have been some ups and downs … prices have been within a relatively stable band here for the last several months. And I think that's what their intent is.&rdq/uo;

3. Current geopolitical unrest bears watching

Eisen asked about the market’s susceptibility to events around the world, especially in the Middle East. Wirth:

“It's always hard, until you look at it in hindsight, to really know if the market priced the risk in. If you look back at the invasion of Ukraine, the market priced in a significant supply disruption, which really never occurred. We saw Russian barrels continue to come into the market, maybe to different countries and different buyers, but the market stayed well supplied.

“In this instance, an incident in the Strait of Hormuz really could change the physical supplies in the market. And I think that's what's a little different today versus a couple of years ago, is you've got a conflict in an area that is really proximate to significant export capacity. … Iran, Saudi Arabia, the Strait of Hormuz, one of the largest oil transit choke points in the world. And, if that were to be threatened or impacted, then I think markets would have to respond.”

4. Natural gas is key to America’s energy future

Wirth said efforts to reduce emissions through electrification underscore the need for American natural gas production – because wind and solar, for example, need a partner energy source to fuel power generation when wind and solar aren’t available:

“The move to electrify everything, whether it's transportation, heating and industrial processes, and now the increased demand from data centers, all requires reliable and affordable power generation. Renewables offer affordable power generation in some places with good wind and solar. But data centers don't shut down when the sun goes down. And so we need to have the ability to provide baseload supply for all of these needs. I think natural gas will be a big part of that equation going forward. And it's a little hard to quantify right now because this is evolving so quickly, on the [artificial intelligence] side. But I think demand for natural gas is, is likely to be higher than what people have been estimating up until now.”

“I think we're going to see renewables continue to grow. We need to invest in the grid to be able to deal with that growth and the intermittency. But we're also going to need backup power for times when renewables are dealing with their intermittency. And so, coal plants are really on their way out in this country. Nuclear is expensive. Geothermal is less proven. You come back to natural gas [as] the most likely source of that reliable baseload supply.”

5. Consistent energy policy needed from Washington

America’s energy advantage – strong oil and natural gas production in a world that runs on oil and natural gas – is based on sound, consistent policy from Washington that looks to the future. Policymakers must take that approach because typically it takes years to bring new production online. Wirth:

“Energy policy is always important. And sadly, we've not had constancy of purpose in this country with energy policy. And it does tend to swing from one to another.  … Business and policy uncertainty doesn't encourage investment. And I think that's the key message I try to get across to policymakers. We need a balanced and pragmatic conversation about energy that balances economic prosperity, energy security and reliable supply, and protection of the environment. And we need to have policies that put an emphasis on all three of those and then are durable through political cycles.”

6. Administration’s LNG pause is problematic

The Biden administration’s pause on new liquefied natural gas (LNG) permitting hinders America’s ability to give our allies stable supply sources, as well as the opportunity to see the kinds of emissions reductions the U.S. has achieved from using natural gas instead of coal in power generation. The LNG pause is potentially harmful to America’s global relationships. Wirth:

“It sends a signal that's not a helpful signal, which says the U.S. may not be a reliable supplier. And so, pausing something like that might be good for Qatar, but it's not good for the U.S. It raises questions in the minds of customers as to whether this is a country they can rely on for long-term supplies. And that's not good.”

See the whole interview here:

With Wirth’s comments as backdrop, some additional points:

Support and increase American production

There has never been a better time to strengthen American oil and natural gas production than right now.

American energy has been an important part of keeping the global crude oil market well supplied – even amid serious conflicts overseas. Reuters energy columnist John Kemp writes: “Prices have risen by just $6 per barrel (7%) compared with a year ago when [OPEC+] was planning production cuts to boost them.” Kemp’s chart:

Unfortunately for fans of American energy leadership, the Biden administration has camouflaged weak and inconsistent energy policy in record oil production today. Yet the reason we have record production today is mainly due to a few factors: 1) Policy and investment decisions made years ago, under previous administrations; 2) American industry’s relentless innovation and use of technology to develop energy from shale, outer continental shelf (OCS) subsalt, OCS deepwater and coal bed methane; and 3) increased production on state and private lands.

The real issue is that there’s significant potential risk to future American production and future U.S. energy security in this administration’s failure to adequately plan for new and increased production. Consider:

Smallest U.S. offshore leasing program ever

We’ve talked about the administration’s inadequate – even risky – minimalist leasing program for the Gulf of Mexico (more here).

Though 15% of total U.S. oil production comes from the OCS, the five-year leasing program finalized by the U.S. Interior Department last fall, a year and a half after the previous federal leasing program expired, scheduled zero lease sales for 2024, the first year since 1966 without an offshore lease sale.

In all, the administration’s five-year program provides for a maximum of three lease sales (one each in 2025, 2027 and 2029), but the administration could opt for less. Or it’s possible the 2025 sale could be delayed until 2026. Acting Interior Deputy Secretary Laura Daniels-Davis told a Senate hearing last week that the department had just started preparing for the sale, a process that takes “at least 18 months.” Though a department spokesman later said Interior is “on track for a lease sale in 2025,” you’ve got to wonder.

Bottom line is the administration’s offshore approach could potentially create gaps in supply in the future. Offshore projects can take seven to 10 years to start producing energy. To have oil years from now, you have to start the process to develop it today. (More in this Q&A with API’s Holly Hopkins, vice president of Upstream Policy.) 

Energy from anywhere but America

The Biden administration’s treatment of oil and natural gas development in Alaska was called “suicidal – and lawless” by U.S. Sen. Dan Sullivan, R-Alaska, in a Wall Street Journal op-ed.

Sullivan referred to decisions to cancel lawfully held leases on the coastal plain of the Arctic National Wildlife Refuge (designated for development by Congress) and putting more than half of the National Petroleum Reserve-Alaska off limits to future oil and natural gas production.

Meanwhile, we’ve seen President Biden asking foreign suppliers to increase their production – an oil-from-anywhere-but-America policy.

Again, because of America’s oil and natural gas abundance, the U.S. benefits from an energy advantage in the world – including critical help in supplying allies. But the Biden administration risks wasting it through misguided and shortsighted policies.

American energy has been and can continue to be a force for good in the world, but it needs Washington’s support. Chairman Wirth alluded to this in the CNBC interview. America’s energy future depends on it. API President and CEO Mike Sommers in a speech last fall:

“We can come together to get energy policy right. With instability abroad, the world needs leadership, and Americans need the White House and Congress to send a clear and unequivocal signal about the real value of American oil and natural gas. … We cannot squander our strategic advantage and retreat on energy leadership. … [E]nergy security is on the line. We have seen what works – with the right signals from Washington.”