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Execs lay out 5-year challenge for oil, gas, starting with 'decisions today'

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Essential Energy Insights - September 17, 2020

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Execs lay out 5-year challenge for oil, gas, starting with 'decisions today'

Battlingthrough a gas supply glut and sustained low commodity prices is going torequire structural and philosophical changes, energy industry heavy hitterssaid at a summit in New York City.

Evenas U.S. gas producers have accumulated billions of dollars in debt, millions oftonnes of gas are expected to hit global markets, pointed out Charif Souki,co-founder of Tellurian Investments and former CEO of LNG exporter Buthe added that the outlook beyond the next wave of exports is murky.

"Youhave 70 million to 75 million tonnes of additional volumes that are going tocome over the next three to four years. And then nothing. … If we don't startseeing [investors] taking decisions today for what they want to do in 2021,2022, we're going to find ourselves again short, about four to five years downthe road," Souki said at a panel on five-year outlooks for the oil and gassector hosted by Columbia University's Center on Global Energy.

Healso noted that LNG buyers and sellers will increasingly rely on spot marketsas they work to determine an optimal and transparent pricing mechanism.

Barriersto entry in the LNG market in terms of technology and balance-sheet capacityhave been lowered, said Peter Coleman, CEO of The Australiangiant postponed a roughly $40 billion LNG project in March, owing to fallingLNG prices in Asia, oversupply and reduced demand from customers in China.

Colemanindicated that natural gas and LNG buyers who wait for prices to guideinvestment decisions could lose their margins to new business models based onpricing approaches that better address current and expected future marketvolatility.

Meanwhile,U.S. producers will require between $50 billion and $100 billion to deleverage,especially if they need easier access to equity markets, Scott Sheffield,chairman and CEO of PioneerNatural Resources Co., said on a separate panel April 28 at theGlobal Energy Summit.

Pioneerstarted 2016 with a $1.4 billion equityoffering. It also raised its CapEx budget 14% year over year amidexpected positive returns from its Permian assets.

Sheffieldsaid he expects producers to change their hedging policies to realize morevalue in the future while protecting their capital budgets.

Sheffieldalso expressed an optimistic outlook for assets in the Permian Basin and theMarcellus Shale play.

"It'sgoing to take $60-plus [per barrel of oil] — maybe as high as $70 — to get U.S.production to start growing again. Maybe it [will be] 300,000 barrels a day,maybe … 500,000 to 600,000 barrels a day. It depends on how much the worldneeds. And most of it is going to come from the Permian Basin because the EagleFord and Bakken had already flattened, even prior to the collapse of oilprices," he said.