Global oil and gas prices will remain higher for longer as companies resist the urge to ramp up production, the chief executive of Chevron, Mike Wirth told Bloomberg in an interview.
One of the reasons for this reluctance to produce more is that investors are not on board with it, Bloomberg notes. Indeed, investors in oil and gas have become quite nervous about the long-term future of their investments there and have prioritized cash returns now rather than later.
The other reason is weak equity markets, according to Wirth. “There are two signals I’m looking for and I’m only seeing one of them,” he said. “We could afford to invest more. The equity market is not sending a signal that says they think we ought to be doing that.”
Then there is climate change and investor worries about whether energy companies are adjusting to a changing situation fast enough. But it’s not just investor worries. There is also pressure from governments and the public, and this makes decisions on output expansion even harder.
“You’ve got some real new dynamics, whether it’s government policy, efforts to constrain capital into the industry, to make it harder for the industry to access capital markets,” Wirth also said during the interview. “That in the short term could create some risk for the global economy.” Wirth added that the emission footprint of future projects has become a big part of decision-making for energy companies.
In another interview, however, with CNBC, Wirth said the company will not be betting heavily on wind and solar power unlike other oil majors because it believes it would not create enough value for shareholders.
“The returns in wind and solar are actually being bid down, and we’ve concluded that management in our company can’t create value for shareholders by going into wind and solar,” Wirth told CNBC.
By Irina Slav for Oilprice.com
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However, US oil supermajor, Chevron, has a different take on why oil prices will remain higher for longer. It is because companies are resisting the urge to ramp up production. Investors have become quite nervous about the long-term future of their investments there and have prioritized cash returns now rather than later.
Still, Chevron is telling the world that it will maintain oil and gas as its core business where it can achieve the highest return for its shareholders. What the shareholders do with their dividends is their decision. They can invest in renewables, plant trees or keep them in the bank.
The upward trajectory of oil prices will take Brent crude to price $80 a barrel before the end of the year and average $71-$72 in 2021 with global oil demand reaching 99-100 million barrels a day (mbd) and returning to pre-pandemic level.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London