The world's energy system will change in big ways as a result of the Iran war, the CEOs of key oil and gas companies told investors on their earnings calls over the past two weeks.
Iran's blockade of the Strait of Hormuz has resulted in the loss of nearly a billion barrels of oil, with the shortage growing worse every day the sea lane remains closed.
The disruption has demonstrated the fragility of the global energy system, said Olivier Le Peuch, CEO of the big oilfield services company SLB.
"It's going to drive fundamental structural change across the energy landscape," said Lorenzo Simonelli, the CEO of Baker Hughes, a competitor of SLB.
Governments and industry will prioritize energy security, Le Peuch and Simonelli said. It is "no longer simply a talking point," said Jeffrey Miller, the CEO of Halliburton, the other big oilfield services firm.
Investment in oil exploration and production will increase as a consequence, the CEOs said. Low carbon solutions like geothermal, nuclear and grid modernization will continue to see investment, Simonelli said.
"It's not just about increasing energy supply," the Baker Hughes CEO said. "It's about the robust and resilient energy infrastructure and greater redundancy, diversifying infrastructure, reducing reliance on any single large-scale assets."
Diversifying supplies
The closure of Hormuz has underscored the dependence particularly of Asian economies on the Middle East for crude oil and liquefied natural gas imports.
"Obviously, people are going to reassess their energy security and how they ensure that, going forward, they don't have the same exposure," Exxon Mobil CEO Darren Woods said.
Governments will aim to diversify their energy supplies, the oilfield service CEOs said. They will also have to rebuild oil stockpiles that have taken a hit due to the war, the executives said.
"There's going to be a rebuilding of global inventories above historical levels to ensure that energy security is at the foremost," Simonelli said.
U.S. crude oil will become more important that it has ever been in helping the world preserve energy security, said Kaes Van't Hof, the CEO of Diamondback Energy, one of the biggest U.S. shale oil producers. U.S. crude exports have hit record highs during the war.
The oil market is now "fundamentally tighter" due to supply disruption, Miller said. The market has shifted from expectations of a surplus this year to a big deficit, he said.
This will support elevated oil prices after the war is over, Le Peuch said. Higher prices will encourage investment in offshore and deepwater opportunities in Africa, the Americas and Asia, he said.
"Africa [represents] one of the most compelling long-term opportunities, with a significant base of underdeveloped oil and gas resources," the CEO of SLB said. "We expect portfolio allocation to shift more favorably towards this region over time."
