The twin challenges of a low crude price and a low-carbon future create a “frightening cocktail” for the oil industry, Statoil CEO Eldar Saetre warned Tuesday.
The new CEO of Norway’s state-owned oil company urged executives at the IHS Energy CERAWeek conference to embrace both challenges, using them to streamline operations, drive new efficiencies and launch collaboration across the sector.
The fall in crude prices — down from a high of $107.26 last June — has already inspired budget-cutting across the industry, with upstream oil producers slashing capital spending and laying off workers to weather the downturn. Discussions about how to cut costs are unfolding “in most boardrooms these days,” Saetre noted, “but this time as an industry, we must do more than just hit the brakes.”
“More fundamental change — embedded in a more sustainable, cost-performance culture — that is what is really needed to create lasting impacts,” Saetre said.
Oil executives should seek to simplify operations, “actually getting to the core of what’s really, really needed. “Cutting costs in a simple manner is relatively rather easy. Cutting the right cost is much more difficult.”
Saetre’s comments on the main stage at CERAWeek joined a clamor of similar pleas from E&P executives to pare costs amid the oil price decline. Earlier in the day, BP CEO Bob Dudley insisted that the cost structure for the deep-water Gulf of Mexico needs to change.
It’s not clear how long the current downturn will last, but even a short-term cycle has been a hard hit to an industry that had grown accustomed to $100 oil — forgetting past volatility.
“The industry has an amazing capacity to ignore or suppress the fundamental nature of oil and gas,” Saetre said. “It’s a commodity, so it’s volatile; it’s cyclical. That is too easily ignored and forgotten.”
“The industry is better at living with the cycles and going with the cycles than…running their business through the cycle,” he added.
Beyond the current financial concerns, Saetre said the oil industry needs to prepare for a low-carbon future and become part of the climate solution. “We can put our powers of innovation more to work and invest in new solutions,” he said.
Norway has had a carbon tax for more than 20 years, with the cost now hovering around $65 per ton — a factor that may drive Statoil’s endorsement of a price on greenhouse gas emissions.
“Statoil acknowledges the scientific consensus on human-induced climate change,” he said. “We embrace the need to meet the 2-degree scenario.”
But Saetre, who took over as CEO in February after 35 years working for the company, insisted oil and gas aren’t disappearing anytime soon.
“There is a lot of naiveté when it comes to what it will actually take to transform the global energy system and transition to low-carbon society,” he said. “I see a strong role for natural gas and for oil in the world’s future energy mix for a long time.”
“Delivering all the oil and gas that a growing population with growing needs requires is a major challenge,” he added, “and actually delivering it at low cost and at low carbon will require even more.”