Chevron bets on Middle East gas riches and reconciliation

In this news, we discuss the Chevron bets on Middle East gas riches and reconciliation.

HOUSTON / LONDON (Reuters) – After years of focusing on U.S. shale, Chevron Corp CVX.N is pinning its natural gas future on the Middle East, a volatile and divided region where energy majors have been wary of ever since long time.

CEO Michael Wirth’s fulcrum away from Home is based on betting that the Middle East will enter an era of reconciliation that will make it ideal for harnessing natural gas, as demand for cheaper, cleaner fuel is expected to overtake oil.

The new strategy is to see the company close new gas deals in Egypt, Israel and Qatar, while reducing US shale exploration spending.

The plan is based on Wirth’s $ 11.8 billion purchase this month of U.S.-based Noble Energy, which has a roughly 40% stake in the aptly named Leviathan gas field in the Mediterranean Sea. , off the coast of Israel.

“Five years ago the Eastern Mediterranean was not considered endowed from a resource point of view, as I think most people would say today. It’s a fundamental change, ”Wirth told Reuters in an interview.

“There isn’t a lot of capital investment required in the short term,” he said. “At a time when cash flow is important, this is a very attractive attribute.”

The deal brings about an alliance with Israel that has been softened by the narrowing of some historic divisions in the region, such as the establishment of formal ties between Israel and the United Arab Emirates in an agreement signed last month.

Wirth said trade and diplomatic relations in the Middle East “are increasingly codified and stronger, a trend which we believe bodes well for the region.”

Chevron also made a courtesy visit about the Noble Accord to officials in Saudi Arabia, a key partner in several Chevron oil projects and a nation with historically strained relations with Israel, according to a senior source at the U.S. company.

The Saudi government’s media communications office did not respond to a request for comment, while Chevron said it did not discuss details of the meetings.


Yet the regional political and security risks that have deterred some companies in recent years still exist.

Syria and Yemen are torn by wars, with uncertain consequences for a wider region where archivists Saudi Arabia and Iran are waging a proxy battle.

Last January, the US murder of Iranian General Qassem Soleimani in Iraq – and retaliation from Tehran – illustrated the instability of the Middle East and threatened to engulf it in conflict.

Despite these risks, Chevron – which at one point to rival ExxonMobil this month became America’s largest oil company in terms of market value – continues its efforts across the region.

The Leviathan Field and others nearby have the potential to become major factors in the regional fuel supply. Chevron could send gas to an Egyptian liquefied natural gas (LNG) plant that could ship the fuel to Europe or Asia, Wirth said.

European and Asian countries have turned to gas, solar and wind, and are moving away from coal and nuclear power.

“The reality is, you need gas in tandem with renewables,” said Christopher Kalnin, CEO of Banpu Kalnin Ventures, which invests in US shale gas. Asia in particular will remain dependent on imported gas, he said, as it complements solar and wind.

Global gas demand through 2025 is expected to grow 1.5% per year on average, largely due to increasing customer purchases in China and India.

In contrast, oil consumption may have already peaked at last year’s 100 million barrels per day (b / d) level, forecasters say, and this year could drop to 91.7 million. b / d, a low in seven years.


The Middle East produces a third of the world’s oil and a sixth of its natural gas, and has long attracted the interest of foreign oil companies. Chevron produces fewer barrels of oil and gas in the region than other majors, according to data from Rystad Energy, but it is the only large one to have had a continuous presence in Saudi Arabia for 70 years and has had a good relationship. with governments in the region.

“Chevron is extremely good at what I would call crown jewel government relations, big assets in difficult countries,” said Robin West, board member of Spanish oil company Repsol SA REP.MC and head of the Center for Energy Impact at the Boston Consulting Group. “They work very quietly on things.”

The Noble Accord is part of Wirth’s efforts to adapt to a low-cost energy world and expand into Qatar, Egypt and Iraq. It has brought Chevron nearly a billion cubic feet of natural gas reserves and keeps it among the top 10 gas suppliers to the world.

“The size of the opportunity was far beyond the capabilities of a company like Noble,” said a former Chevron executive who declined to be identified due to ongoing relationships.

The purchase could help Chevron participate in the expansion of LNG production in Qatar, where it competes with Exxon, Shell and Total SA TOTF.PA, among others. Chevron also recently signed a preliminary agreement for oil exploration in southern Iraq.

Wirth warned that negotiations were ongoing: “There is no certainty of outcome on either of these points.”

Wirth, meanwhile, stepped up his cost savings at home.

Chevron has halved its spending in America’s first shale field, to about $ 2 billion this year. It had only four active drilling rigs in the Permian Basin in September, up from 16 in March, according to consultancy Rystad Energy.

By Jennifer Hiller in Houston and Ron Bousso in London; Additional reporting by Rania El Gamal; Edited by Gary McWilliams and Pravin Char

Original © Thomson Reuters

Originally posted 2020-10-26 05:36:13.

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