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Shale producers likely to 'forget' discipline at $85 crude: TotalEnergies CEO

Highlights

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The US shale industry may prove unable to resist ramping up activity to produce more crude oil with prices near seven-year highs, even though there is a global energy transition that requires much more investment in cleaner energy alternatives, TotalEnergies CEO Patrick Pouyanné said Oct. 14.

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While TotalEnergies will remain a massive producer of oil and gas, the French company recently changed its name to reflect its more diversified portfolio and is now investing about 25% of its capital spending in renewable and electricity projects.

Speaking at the S&P Global Platts Energy Summit, Pouyanné said his company will continue to invest heavily in natural gas as a cleaner-burning bridge fuel during the energy transition, but TotalEnergies instead aims to "stabilize" its focus on crude oil, even though crude demand is rising in the short term amid weaker global investments.

"We believe the demand for oil will go down. When? We don't know when," Pouyanné said during the summit's Future of Energy Conference.

However, the shorter-cycle shale sector may not be able to avoid the temptation of oil prices above $80/b, he said.

"They have been disciplined. But, at $85, I suspect they will forget," Pouyanné said. "That's why we have cycles."

WTI at Midland, Texas, has averaged $80.79/b so far in October, up from an average of $53.10/b in January, S&P Global Platts assessments show. Front-month NYMEX WTI was trading just below $81/b on Oct. 14, while ICE Brent was approaching $84/b.

US crude production peaked at an all-time high of nearly 13 million b/d in early 2020 before the pandemic, but is back up to about 11.4 million b/d, according to the US Energy Information Administration. The still-booming Permian Basin has recovered to roughly its previous high of 4.8 million b/d, but the Bakken Shale and Eagle Ford Shale, for instance, are each more than 300,000 b/d below their pre-pandemic levels.

Pouyanné said he likes the new name for TotalEnergies, which never invested much in US shale oil, because it means "all energies" -- "We're not the same company."

Energy mix and incentives

Top Permian producer Occidental Petroleum is one of the frontrunners in carbon-capture and emission-free electricity from natural gas technologies.

Oxy is the leader in using captured carbon for enhanced oil recovery in the Permian, but Oxy also is developing direct air capture plants in the Permian to suck carbon out of the air and use it for EOR or permanent sequestration, as well as "NET Power" plants that use natural gas, but only produce water and carbon dioxide, which can be captured, as byproducts.

The world needs a combination of strong governmental policies and new technology innovations to drive the energy transition, said Robert Zeller, vice president of technology for the Oxy Low Carbon Ventures business.

Zeller referenced "The Lord of the Rings" to make his point on diversified energy technologies.

"There is no one ring here to rule them all. It's going to take all of the solutions," he said. "Let the markets work. We need to make our sustainable future."

While carbon capture projects at industrial plants are important, he said, such efforts often require additional pipelines and transportation to move the carbon dioxide to adequate sub-surfaces for injection into the ground. Oxy's direct air capture might cost a bit more up front, Zeller said, but the plants are to be built at locations where the carbon can be injected without additional costs,

Likewise, Chevron Midstream Vice President Colin Parfitt said the California integrated energy player continues to invest more in renewable fuels, hydrogen projects and carbon-capture initiatives, while still focusing primarily on fossil fuels with fewer emissions.

"Be the best as you can at producing those molecules because the customers need them today, and we believe they will need them in the future," Parfitt said.

Renewable energy will continue to grow rapidly, he said, but the intermittency issues from solar and wind will remain even as more battery projects are developed, he said, showing the need for more natural gas as both a bridge fuel and for ensuring power grid reliability. After all, the energy transition will take several decades, not years.

"It's not a quick switch, and we can do it tomorrow," Parfitt said. "We need to be thoughtful about the way we transition."