CERAWeek 2014 - Opening and Keynote Address - Session Report
John Watson, Chairman and CEO of Chevron Corporation, began the Tuesday morning keynote address by reflecting on the past decade and the major economic changes that have taken place in the oil and natural gas industry. Mr. Watson noted that much of the economic growth over the past 10 years has taken place in developing economies. As a result of this economic boom, three-quarters of a billion people have moved into the middle class, and this in turn has led to an increase in demand for goods and services, particularly energy.
Mr. Watson said that governments, companies, and consumers are now facing a "new reality" in the energy business. For companies like Chevron, in the new reality, costs have caught up to revenues for major projects. Mr. Watson stated that "$100 per barrel is the new $20," and this increase in costs is having a profound impact on investment decisions. He noted that Chevron is fortunate because it is the most profitable of the oil companies in terms of profit per barrel and has a great lineup of projects.
The new reality for governments is that resource-rich countries must be competitive in order to attract capital and investment. Mr. Watson remarked that there is no shortage of natural resources to meet demand around the world and that most of the constraints tend to be aboveground. Citing Chevron's investments in liquefied natural gas projects in Australia as an example, Mr. Watson emphasized that Chevron has had the confidence to make these investments because Australia has had a stable government with stable policies for many years.
The new reality for consumers is that energy will be more expensive. Mr. Watson said he expects that governments will put into place a range of policies that consumers will ultimately pay for or benefit from owing to the new price of oil.
Mr.Watson ended the session by answering questions from IHS Vice Chairman Daniel Yergin. When asked how the energy industry will manage costs, Mr. Watson stated that companies like Chevron work very hard to keep suppliers informed of their plans so oil producers can make long-term decisions to build capacity. Dr. Yergin also asked questions about Chevron's view of allowing oil exports out of the United States. Mr. Watson said that he shared many of the views of Sen. Lisa Murkowski of Alaska and that the benefits of free trade are obvious and were established long ago.
This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.