US Chevron to expand Permian oil output amid labour shortages

HOUSTON (ICIS)–Chevron remains on track to expand crude oil production in the Permian basin to 1m bbl/day from 700,000 bbl/day even amid a persistent shortage in labour and equipment, the CEO of the US-based energy producer said on Monday.

For comparison, Chevron produced 100,000 bbl/day of oil in the Permian a decade ago, said Mike Wirth, CEO. He made his comments during the energy conference CERAWeek by S&P Global.

The carbon footprint of oil produced in the Permian is about 13kg of carbon dioxide (CO2) per bbl of oil equivalent, he said. That is less than half the average of Chevron’s portfolio, Wirth said.

Much of the oil produced in the Permian is shale based and results in a significant amount of associated gas. Associated gas is rich in ethane and other natural gas liquids (NGLs) and are the predominant feedstock of US chemical plants.

Moreover, as shale-oil wells age, they produce an increasing proportion of associated gas.

US supplies of ethane and NGLs could increase if Chevron and other energy companies continue to increase production in the Permian and other shale-oil basins.

DJ BASIN
Chevron also produces a significant amount of oil in the Denver-Julesburg (DJ) basin in and around the state of Colorado in the Rocky Mountains region.

Chevron obtained much of this production with its acquisition of Noble Energy.

The acquisition also gave Chevron access to Noble’s methane and greenhouse-gas-emission control capabilities which were applied to Chevron’s other operations, Wirth said. Noble was also aggressive in electrifying its drilling operations which further reduced greenhouse-gas emissions at its operations.

INTERNATIONAL OPERATIONS
Chevron was among the first US companies to make a significant investment in Kazakhstan after independence.

Chevron’s current oil production in Kazakhstan stands at 700,000 bbl/day, similar to that produced in the Permian, Wirth said. It is planning to increase this to 1m bbl/day.

Chevron has a two-component expansion project for the country and has advanced from construction to commissioning and start-up, Wirth said.

Much of that oil will go to Europe, he said.

In the eastern Mediterranean, Wirth highlighted offshore discoveries in Egypt and Cyprus as well as exploration acreage in offshore Egypt.

This comes on top of existing offshore production in Israel, Wirth added. The offshore gas helped Israel to reduce carbon emissions from its power industry by switching from 100% coal-based production to 70-80% gas-based, he said.

In addition, that gas is being exported to Egypt and Jordan, Wirth noted, before adding that Chevron is exploring options to ship Mediterranean gas to Europe.

Wirth did not rule out a pipeline, but said such an undertaking would be extraordinarily complex because it would involve many countries and cost billions of dollars.

Another option could use facilities in Egypt, Wirth said. Chevron is not a party to those facilities, so it would need to start commercial negotiations and sort out export policies.

Chevron is also considering floating liquefied natural gas (LNG) facilities that could be close to its offshore platforms, Wirth said. With floating LNG facilities, Chevron could work with its existing partners, although such a project would require capital and time.

WAR UPENDS ENERGY MARKETS
Because of the war between Russia and Ukraine, Europe has become a viable destination for LNG shipments from the eastern Mediterranean.

Europe will not return to its earlier reliance on exports of Russian gas and this has upended the global LNG market. Europe competes with Asia for LNG imports. When US companies start up new LNG export terminals, they should meet an eager market.

Oil markets are still playing out, Wirth said. Russian crude is still exported but is sold under a different price structure.

Downstream refined-products markets are in flux.

The pandemic forced a lot of refining capacity to be shut down and delayed expansion projects for the remaining refineries.

Bans on Russian exports of refined products are still relatively recent and Europe has built up inventories in preparation, Wirth said. It will, however, take time to gauge how the bans affect the global fuel markets.

About a month ago, Mexican polyester producer Alpek said the European ban on imports of Russian refined oil products has already disrupted the shipping market.

Russia has historically exported material to Europe by pipeline. The bans have forced Russia to export these products to new markets by liquid tanker, and this has resulted in increased demand for liquid-tanker capacity and a rise in rates, Alpek said.

Additional reporting by Adam Yanelli

Thumbnail image shows an oil pump. Photo by Shutterstock