BHP looks beyond shale boom Matt Chambers THE AUSTRALIAN MAY 18,...

BHP looks beyond shale boom
Matt Chambers

• THE AUSTRALIAN
• MAY 18, 2015 9:54AM

A shale oil rig in Texas. The US shale oil boom is expected to peak in a decade

BHP Billiton oil and gas chief Tim Cutt has warned the US shale boom will probably peak in a decade, requiring other oil supplies to fill demand.

His comments continue to recast the direction of the big miner’s petroleum unit away from shale.

Speaking at the Australian Production and Petroleum Exploration Association conference in Melbourne this morning, Mr Cutt backed the widespread industry view that current oil prices of around $US60 a barrel would not last as long as previous troughs.

He pointed back to 1986 when the OPEC oil cartel maintained oil output in the face of growing supply to force down prices and regain market share — just as is happening now. Then, after a decade of low prices and a lot of industry mergers, prices recovered.

“I expect to see a parallel outcome in today’s market but with a much more rapid cycle time,” Mr Cutt said.

He warned demand for oil was accepted to be growing at 1 million barrels per day, while old fields were declining at a rate of 3 to 4 million barrels, creating a growing future supply gap.

“Backed by the growth in unconventional oil, the US will play an important role in meeting this

effective demand gap,” Mr Cutt said.

“Nevertheless, additional supply will be required from new sources around the globe. These sources of supply will become increasingly important given that US production will likely peak within the next decade.”

BHP (BHP) has become less confident of the economics of shale oil and gas outside of where it spent $US20 billion buying into US fields in 2011, leading it to shift its focus back on “conventional” oil sources for growth.

BHP chief Andrew Mackenzie has said the company could make conventional oil acquisitions if the right opportunities presented themselves in today’s downbeat market.

Mr Cutt said outside of shale, oil exploration was not keeping up with demand.

“On an annual basis, the world currently consumes over 30 billion barrels of oil,” he said.

“On average, over the past two decades, the industry has been finding less than half that amount each year on a recoverable basis. In the past four years discoveries were less than 10 billion barrels per year and in 2014 they amounted to less than six. That’s only a fifth of current consumption.

“This is a staggering trend and represents an opportunity and responsibility.”

Federal Industry and Science Minister Ian Macfarlane, who also has resources in his portfolio, told the conference the nation needed to focus on securing a new wave of LNG investment.

“I acknowledge the current difficult market conditions may dampen investment in new projects until there are signs of a turn in the commodity cycle, however it is important we don’t overlook the ongoing growth in gas demand, particularly here in the Asia-Pacific region.”

Mr Macfarlane said he was confident the $40 billion Browse billion floating LNG project would go ahead, provided agreement could be reached with WA on domestic gas supply. He also said he expected the contentious $10bn Carmichael coal project run in Queensland’s Galilee Basin to go ahead.

Mr Macfarlane declined to comment on his view on whether there should be an inquiry into the iron ore market, but did not back away from reports saying there was a cabinet split and that he was concerned it could damage Australia’s international reputation.