Lessons From IHS CERAWeek: What We Heard on Conference's Day 1

Oil's Slide: Do Prices Have More Room to Fall?
  • OPEC-Shale's complicated relationship, Mexico's energy reform
  • IEA's oil price outlook, Oxy's debt view, Statoil's worry

So what do 2,800 or so of the world’s elite energy minds talk about when they gather at Houston’s IHS CERAWeek energy conference? Here’s a taste of what we heard on Monday.

Can’t we all just get along?

Maybe not, said OPEC Secretary-General Abdalla Salem El-Badri. The group is struggling to co-exist with U.S. shale. "Shale oil in the United States, I don’t know how we are going to live together," El-Badri said. Shale drillers can boost output in response to price increases much faster than anything OPEC has ever seen, he said. That complicates the group’s ability to prop up prices.

‘A Decisive Action’

That’s how Mexico President Enrique Pena Nieto describes his decision to let any company import gasoline and diesel starting April 1, at least eight months earlier than expected. The imports “will trigger private investment, and will allow for strong competition in the fuel sector by 2018,” according to Pena Nieto. He also said the country’s auction of deep-water drilling rights would take place in early December.

$80 Oil

Good news: Oil’s going back to $80 a barrel! The bad news: Not until 2020, according to the International Energy Agency’s medium-term outlook, released Monday. “The historic investment cuts we are seeing raise the odds of unpleasant oil-security surprises in the not-too-distant future,” IEA head Fatih Birol said.

No M&A Boom

Want to know why the acquisition boom hasn’t taken off in energy? Look to the debt, said Occidental Petroleum Corp. Chief Executive Officer Stephen Chazen. Under so-called change-of-control provisions, the debts of many U.S. drillers would have to be paid off by any company that acquires them. The specter of those large, upfront costs are discouraging takeovers, he said.

A Contrarian View

CERAWeek might be too much of a good thing. “This is the very best of all the oil conferences,” said Torgrim Reitan, the former CFO and gas trader at Norway’s Statoil ASA dispatched to America last year to overhaul shale operations. “But the danger with having all in the same place is they all say the same things and act alike. They can miss the contrarian view. So much of the discussion is about the next week, the next month.”

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