Oil demand will bounce back, says BHP boss Mike Henry
BHP boss Mike Henry is confident the mining giant’s oil and gas business can ride out the current slump in oil prices, with the temporary dip in demand to be balanced out by the natural decline in production as oil reservoirs are depleted.
“In the case of oil, natural fuel decline – the rate at which current production declines because oil reservoirs get depleted – a conservative estimate of that is about 3 per cent per annum, so even in a world where demand slackens or is less than what we expect, the world is going to need investment in new production capacities just to meet that decline,” he said in an online shareholder Q&A on Thursday.
Mr Henry added that demand for oil and steel would pick up once the global economy starts to recover from the effects of the coronavirus pandemic.
“We are confident that as the world comes out of COVID-19, demand will recover again. The fundamentals of global population growth, the billions of people around the world who are seeking to lift their living standards, further industrialisation, further motor vehicles being purchased around the world, all of these things are going to lead to a recovery in demand for oil and steel,” he said.
Oil prices have slumped on the back of coronavirus restrictions cutting global demand and a supply glut in the market exacerbated by tensions between OPEC+ and Russia. Brent crude oil prices, which were around $US61 a barrel at the start of the year, are hovering near the $US20 a barrel mark and have forced major oil and gas operators to defer investment on major projects.
BHP has also revised its spending on oil and gas projects, telling the market this month it would cut its exploration and appraisal spend by 30 per cent ($300 million) in the 2021 financial year.
The company has also pushed back its final investment decision on the Scarborough offshore LNG project by 12 months. BHP holds a 26.5 per cent stake in Scarborough with the rest held by project operator Woodside.
Woodside last month deferred its final investment decisions for the Scarborough project to 2021.
Mr Henry said the miner was being prudent in which projects to pursue in the face of the challenges posed by the COVID-19 pandemic. “We have elected to defer the Scarborough final investment decision, we also have a number of smaller projects in petroleum where they have shorter lifecycles so it may make sense from a value perspective for us to push these projects back a bit in a rising market and capture more value.
“We will look where it makes sense to defer some projects to preserve cash or where it makes sense for us to defer because that’s the value maximising decision, the final category of projects that we may look to slow up would be those where deferral can help us address some of the COVID-19 health and safety risks.”
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Source: Thanks smh.com