What to Watch

Iran’s Oil Boom Hasn’t Showed Up

Major oil firms are holding on to their wallets instead of investing in Iran’s  energy sector, one of the world’s largest, writes the WSJ’s Benoit Faucon.

International companies are largely staying on the sidelines as the Trump administration threatens to rip up the 2016 nuclear deal and reimpose oil sanctions lifted in exchange for limits on Iran’s atomic-power program.

Iranian officials predicted that by now the nuclear deal would have resulted in $10 billion a year in fresh foreign spending in the oil-and-gas sector. But only about $1.3 billion has been injected over two years, mostly from China, according to analysts at the oil consultancy Wood Mackenzie.

A few corporates such as France’s Total SA, auto-maker Peugeot and aircraft producer Boeing Co. have found ways to make deals in Iran, but the rest remain on the sidelines.

The slow pace of progress is frustrating officials in Tehran who are blaming the U.S. for sowing fear and uncertainty.

“I am not satisfied,” said Iranian Oil Minister Bijan Zanganeh in an interview. “But we are trying and I am optimistic.”

Energy Journal Exclusive

The Oil Industry and Elvis Have the Same Data Problem, Says Analyst

The oil industry’s predictions of shale-oil production growth are like a popular legend about Elvis Presley, says Trip Rodgers, a portfolio manager at Boone Pickens Capital Fund Advisors.

Supposedly, there were 170 Elvis impersonators at the time of his death in 1977, notes Mr. Rodgers in a December research paper. At 31% annual growth rate, over 9 billion people would be dressed as the singer by 2043.

Yet a simple visual check rightly gives skeptics suspicious minds about those figures.

It’s a similar case for shale oil, Mr. Rodgers said. Logical constraints will limit its growth.

His firm conducted a survey of industry professionals in the Permian Basin, the oil-rich region straddling Texas and New Mexico. He found pressures ranging from a shortage of water and sand used to hydraulically fracture oil wells to rising labor costs.

The following are edited excerpts from an interview on Friday with The Wall Street Journal.

Q: How much do you project U.S. shale will grow?

A: Most of the industry thinks we’ll grow 1 million barrels per day or more in the next several years. We think there is risk of those forecasts but should some of these constraints come into play you will see substantially less of that.

We do think that in many cases analysts have extrapolated prior years’ growth in making the forecast …[that] U.S. shale production will swamp global demand and lead to lower prices. But …when you get on the ground and start to talk to people…you get a feel for what the challenges are.

Q: When do you think we’ll see some of these constraints slow the growth of U.S. output?

A: In the next couple of years we do see some of these constraints kicking in from labor to fracking equipment, water to logistics. The most obvious one would be labor.

The U.S. unemployment rate in January was 4.1%, the lowest in years. Basically the workers that were let go in the last downturn have largely re-entered the oil industry. Companies [now] have to recruit people from other sectors such as teachers or the military. The tightest market is for truck drivers. You can now earn $100,000 a year and get a signing bonus.

Q: What about the money pouring into the oil industry?

A: Capital discipline is one of the most powerful constraints. Companies are starting to listen to Wall Street and position their growth within their cash flows.

We were at a conference and many of the producers were asked point blank: With oil prices above $60 are you going to change your plans? They broadly said no and plan to maintain their budgeted production and use their excess cash for stock buybacks or increased dividends.

Q: What happened to all the Elvis impersonators?

A: Well it all goes back to labor tightness. Maybe they don’t get paid that much and they are in the oil fields now.

Energy News

What Could Send Oil Above $70 a Barrel: Climbing China, India Demand

Investors should watch out for an increase in demand for oil from Asia, according to Gary Ross, global head of oil analytics and chief energy economist at S&P Global Platts. The oil market is careening toward a supply gap that could send U.S. crude prices above $70 a barrel if countries there, especially India and China, ratchet up their appetite for crude, Mr. Ross said.

Meanwhile, oil prices steadied on Thursday, under pressure from rising U.S. crude inventories and record domestic output. Brent crude, the global oil benchmark, fell 0.1% to $64.29 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading up 0.1% at $61.18 a barrel.

GE Power, in Need of a Lift, Chases Tesla and Siemens in Batteries

General Electric Co., is venturing back into  the battery business after struggling with a previous energy storage project. The company is set to build a giant platform called GE Reservoir, which is expected to store electricity generated by wind turbines and solar panels for later use.

“Relationships are uncomfortable from time to time … and we work our way through those. As we develop NAFTA and we renegotiate NAFTA there are going to be some uncomfortable things”

– Rick Perry, U.S. Energy Secretary

Wall Street Doubts Exxon’s Growth Plans

Shares in Exxon Mobil Corp. fell about 2.4% on Wednesday after the company unveiled  plans to boost profits, returns and growth, but not to buy back stock. Chief Executive Darren Woods said the company has some of the best investment opportunities in a generation, but analysts pointed out that Exxon has failed to meet such targets in the past.

Big Number

$7,500

General Motors Co. Chief Executive Mary Barra is pressing Washington for an expansion of electric-vehicle tax credits, a plea that would help the company and rivals like Tesla Inc. sell battery-powered cars in an era of cheap gasoline.

Otherwise, auto makers are expecting the expiration of a $7,500 income-tax credit implemented by the Obama administration.

FutureCurve

Today: IHS Markit hosts the CERAWeek energy conference in Houston, which concludes on Friday. The speakers include IHS Markit Vice Chairman Dr. Daniel Yergin and Amin Nasser, president and CEO of Saudi Arabia Oil Co., or Saudi Aramco.

Friday: Oil services firm Baker Hughes releases its weekly U.S. rig count report.

June 5-6: The London Crude Oil Summit. The speakers include Shell Vice President of Crude Trading Mike Muller and Franco Magnani, CEO of Eni Trading and Shipping.

Reporter’s Notebook

WSJ’s Sarah Kent on gas developments. Russia’s Novatek has thrown down the gauntlet for dominance of the global liquefied natural gas market. “Our goal is to be the largest single LNG producer in the world as a company,” Novatek CFO Mark Gyetvay told the CERA conference in Houston. Mr. Gyetvay was speaking on the same panel as current market leader Royal Dutch Shell PLC’s head of exploration and production. Mr. Gyetvay said the Russian gas producer is working to progress the second phase of its giant Arctic LNG project by early 2019. “We need to 10X our business,” he said.

The WSJ’s Reporter Bradley Olson on oil discoveries. Exxon Mobil Corp.’s gigantic oil discovery in Guyana, which is expected to start producing in 2020, may have gross output of almost 700,000 barrels a day by 2027, according to the company. This is among the most detailed disclosures about the potential of the field, which is operated by Exxon and in which Hess Corp. is also a partner.