Chevron bets on the gas wealth of the Middle East
After years of focusing on US shale, Chevron Corp is betting on the future of natural gas in the Middle East, an unstable and divided region where major energy companies have long been wary..
This strategic move by the CEO Michael Wirth (Michael Wirth) builds on the Middle East is entering an era of reconciliation that will make it ideal for natural gas as demand for cheaper, cleaner fuels is projected to exceed demand for oil.
As part of the new strategy, the company will conclude new gas deals in Egypt, Israel, Qatar and reduce spending on exploration for shale deposits in the United States..
At the heart of this plan is Wirth's purchase this month of US Noble Energy for $ 11.8 billion, which owns about 40% of the Leviathan gas field in the Mediterranean off the coast of Israel..
The deal leads to an alliance with Israel that is growing stronger by narrowing some of the region's historic divisions, such as the establishment of official ties between Israel and the United Arab Emirates in an agreement signed last month..
Wirth said that trade and diplomatic relations in the Middle East «are becoming more structured and solid, and this is a trend that we believe bodes well for the region».
Chevron also paid a courtesy call about the Noble deal to officials in Saudi Arabia, a key partner in several of Chevron's oil projects and a country that has historically had tensions with Israel, according to a senior source at the American company..
CNBC’s full interview with Chevron CEO Wirth and his reaction to Saudi Arabia oil attack
The Saudi government's media relations office did not respond to a request for comment, while Chevron said it would not discuss details of the business meetings..
However, the regional political and security risks that have held back the expansion of some companies in recent years still exist..
Syria and Yemen are torn apart by wars with uncertain consequences for the entire region, where the main rivals Saudi Arabia and Iran are engaged in indirect confrontation.
Only in January of this year, the assassination of Iranian General Qassem Soleimani in Iraq by the US military – and Tehran's retaliation – demonstrated instability in the Middle East and threatened to submerge the region. into chaos.
Despite such risks, Chevron, which at some point bypassed its rival ExxonMobil this month to become the largest U.S. oil company by market value, continues to make efforts across the region..
The Leviathan and other nearby fields have the potential to become major drivers of regional fuel supplies. Wirth said Chevron could send gas to an Egyptian liquefied natural gas (LNG) plant, which could supply fuel to Europe or Asia..
Countries in Europe and Asia are switching to gas, solar and wind energy, and ditching coal and nuclear power.
«The reality is you need gas in tandem with renewable energy», – said Christopher Kalnin (Christopher Kalnin), CEO of Banpu Kalnin Ventures, which invests in US shale gas. Asia, in particular, will remain dependent on imported gas as it complements solar and wind energy, he said..
Global gas demand is projected to grow by an average of 1.5% per year until 2025, mainly driven by increased purchases by consumers in China and India..
On the contrary, oil consumption may have already peaked at last year's level of 100 million barrels per day, forecasters say, and this year could drop to 91.7 million barrels per day, which is a seven-year low..
The Middle East produces a third of the world's oil and one-sixth of the world's natural gas, and has long attracted the interest of foreign oil companies. According to Rystad Energy, Chevron produces fewer barrels of oil and gas in the region than other large companies, but it is the only major company with a consistent presence in Saudi Arabia for 70 years and has good relations with the governments of the Middle East region..
«Chevron is extremely good at what I would call a gem in government relations, large assets in complex countries», – said Robin west (Robin West), member of the board of directors of the Spanish oil company Repsol SA and head of the Boston Consulting Group's Energy Impact Center.
The Noble deal is in line with Wirth's efforts to adapt to the world of cheap energy and expand operations in Qatar, Egypt and Iraq. This brought Chevron nearly 1 billion cubic feet of natural gas reserves and ensures it remains one of the top 10 gas suppliers in the world..
The purchase could help Chevron acquire a stake in the expansion of LNG production in Qatar, where it competes with Exxon, Shell and Total SA, among others. Chevron also recently signed a preliminary agreement for oil exploration in southern Iraq..
Wirth warned that negotiations are ongoing and there is no confidence in their positive outcome on any of the projects..
Meanwhile, Wirth has stepped up spending cuts at home..
Chevron has slashed its spending on the largest US shale field in half, to about $ 2 billion this year. According to Rystad Energy, a consulting company, it had just four operating rigs in the Permian oil and gas basin as of September, up from sixteen in March..