CERA14: Rising costs become "new reality"

March 4, 2014

During his keynote address at IHS CERAweek, Chevron Chairman and CEO, John Watson (pictured), addressed the challenges and changes in the industry, noting the effects of rising costs on the industry’s success.

With labor and cost doubling over the past decade, Watson said that a “new reality” has emerged. Cost has caught up to revenue, however, the industry has the ability to adapt to higher prices.

“$100/bbl has become the new $20/bbl in our business,” Watson said.

The demand for energy is projected to increase 40% by the year 2030, and Watson said that consumers would have to adjust to paying the higher costs for oil. Watson stated there was also a new reality for governments of consuming countries across the globe regarding the industry-wide cost increase.

“Governments in consuming countries are facing challenges balancing economic security, and they need to develop policies that are both sustainable and economically sound,” Watson said. “Consuming governments around the world subsidize their countries by over $500billion/yr. I don’t think some of these subsidies will be sustainable.”

Watson mentioned that more attention needs to be paid to free trade in the U.S., agreeing with Senator Lisa Murkowski who spoke on exports at the conference on the previous night.

“Senator Murkowski said it very well,” Watson said. “The idea that we’re debating whether we should be able to export oil or gas, petrochemicals or anything else seems to be a debate that was won a long time ago. Free trade wins.”

Watson said that Canada and the US have sufficient LNG to export globally, and that demand for natural gas will continue to grow. He projected the market for LNG exports from the region to be in high demand within the next 15 years.



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