In a significant development, U.S. oil giant Chevron Corp is staking its natural gas future on the Middle East, a typically volatile region where energy majors have long tread warily.
Chevron’s CEO Michael Wirth’s Middle Eastern pivot underpins a bet that the Middle East is entering an era of reconciliation and is ideally placed for tapping natural gas, a cleaner and cheaper fuel, whose future is forecast to outstrip oil.
The strategy is seeing Chevron pitch new gas deals in Egypt, Qatar, and Israel, while cutting spending in American shale exploration.
“Five years ago the Eastern Med wasn’t viewed as endowed from a resource standpoint as I think most people would say today. That’s a fundamental shift,” said Wirth in an interview. “There’s not a lot of capital investment required in the near term,” he said. “At a time when cash flow matters, that’s a very appealing attribute.”
The deal comes at a time when the Middle East is witnessing a narrowing of historical difference between Israel and others countries in the region. Last month saw the United Arab Emirates sign a historical peace deal with Israel.
Middle Eastern commercial and diplomatic relations “are becoming more codified and stronger, that’s a trend that we think augurs well for the region,” said Wirth.
Political and security risks are however persistent. Yemen and Syria are prime examples of countries riven by wars, with uncertain consequences for a wider region with countries such as Iran and Saudi Arabia waging a proxy battle. Earlier this year in January, the United States had targeted and killed Iranian general Qassem Soleimani in Iraq, illustrating the instability of the Middle East.
Despite such geopolitical risks, Chevron has made its Middle-Eastern pivot as a central pillar in its fossil fuel strategy.
European and Asian nations have begun moving towards natural gas, wind, solar energy, away from coal and nuclear power, in their energy portfolios.
“The reality is you need gas in tandem with renewables,” said Christopher Kalnin, CEO of Banpu Kalnin Ventures, because it complements renewable industries such as wind and solar.
The global demand for LPG is projected to rise by 1.5% per year on average largely due to growing purchases from countries such as India and China. In contrast, oil consumption has peaked in 2019 touching 100 million barrel per day (bpd), say forecasters; they expect it to sink to 91.7 million bpd and touch its seven-year low.
“Chevron is extremely good at what I would call crown jewel government relations, big assets in challenging countries,” said Robin West, a board member of Spanish oil major Repsol SA, who is also the head of Boston Consulting Group’s Center for Energy Impact.
“They very quietly work away at things.”
The Noble deal fits Wirth’s effort to adapt to a low-cost energy world and expand in Qatar, Egypt and Iraq since it placed nearly 1 billion cubic feet of natural gas reserves at Chevron and ensured that it remains among the world’s top 10 natural gas suppliers.
“The size of the opportunity was way beyond the capacity of a company like Noble,” said an anonymous former Chevron executive who preferred the cover of anonymity given ongoing relationships.
The deal is likely to help Chevron’s bid for a stake in Qatar’s LNG production expansion, where will further compete with its peers including Total SA, Exxon, Shell and others.
Chevron has also recently signed a preliminary agreement for oil exploration in southern Iraq.