- A crisis in Qatar hasn't been enough to lift oil and natural gas prices as the world remains awash in supplies
- Harold Hamm sees U.S. natural gas exports changing the power dynamics of Europe
- It's difficult to get a good, accurate count on where oil supplies stand, because major sources of information don't jibe with one another
In a phone interview with CNBC, Harold Hamm, chairman and CEO of Continental Resources, talked about turmoil between Qatar and its neighbors, the price of liquid natural gas and oil, and the latest on the United States' first LNG exports to Northern and Central Europe.
CNBC: Last Thursday, the White House announced LNG shipments to the Netherlands and Poland — the first American LNG exports into northern and central Europe. You have said in the past that U.S. exports of natural gas to Europe would shake up the geopolitical landscape, because it would relieve Europe from being beholden to Russian natural gas.
Hamm: Yes. The world impact news you are talking about is a huge thing, because Poland has been subservient to Russia, because Russia could hold things over Poland's head to get what they want. Now it won't be possible. These exports are also a part of the larger picture of U.S. energy independence. We are now past the point of the U.S. being energy-independent with natural gas. We are shipping around the world, and now with infrastructure being built and put into place, we will continue to export even more through time. This is just the beginning.
CNBC: Let's turn to regulations. LNG facilities needs permits.
Hamm: Yes, and it does not make sense! Why do we need a special permit for LNG? You don't need a permit for gasoline or oil. To unleash LNG's potential, we can't have this permit slowdown! Our company is bullish on natural gas, and this permitting process is putting LNG exploration and production on the sidelines. There is no reason why LNG can't be exported like crude oil.
I have had talks with Secretary Rick Perry at the Department of Energy, and the length of time it takes to get permits approved is one of the things he said he will get fixed. There is no reason to have this long permitting delay. Government just needs to go down the boxes and check them, make sure safety measures are in place, and permits should be given. Some of the first permits for LNG facilities took five years to pass. Some permits took seven years! The Obama administration held them up. That certainly needs to be remedied. We have the cleanest fuel in the world, and yet it is being delayed to the consumer. It can offset the pollution of coal, wood.
CNBC: How does this change the landscape of energy exports and what does this mean for Qatar, which is the world's largest exporter of natural gas?
Hamm: The Qatar situation certainly brings up the delicate situations that are involved in doing business over there in the Middle East Region. All those tribal factions in Qatar are now coming into play. The fact Iran has been so involved with them is what has brought this about. But this conflict provides opportunity for the United States in exporting our natural gas. We are a neutral nation. Other countries like China or other Qatar customers would not have to worry about anything if they wanted to import U.S. LNG.
CNBC: The U.S. is in the early innings of LNG exports. The first shipment of U.S. LNG from the lower 48 states left in February 2016. As infrastructure continues to be built out, what kind of LNG export capacity will we be expecting?
Hamm: It does takes time to build out. With the proposed facilities to be built and facilities already permitted, you can be looking at 11 billion cubic feet a day in the next two years.
CNBC: Where do you see nat gas prices going?
Hamm: We are in for very moderate pricing for nat gas for a lot of years going forward. I feel prices are in a fair range. I think we will be north of the average $3.50 by the end of the year. In 2018, I expect the same. Who knows about where prices go after that? I think we have adequate supply for a hundred years. I think north of three dollars may be the new normal. With the quantities of gas that we produce it would give us a good rate of return at Continental from the plays in which we are involved.
CNBC: Oil prices have tumbled to their lowest levels this year amid those tensions between Qatar and its neighbors — Saudi Arabia, Egypt, Bahrain and the United Arab Emirates. Do you see a ceiling on oil prices at this moment?
Hamm: I don't think we speculate on where it will go. Look what has happened to the market. OPEC decided to flood the market in 2014 and it was a big mistake. OPEC saw shale as a threat and tried to quash it. They failed. It was not the wisest thing they did. They now realize it was a mistake. Last time they killed the market was in the 1980's and it took a while to turn things around. They decided in January to cut back production. But you have to remember, you need more than 120 days to turn around the impact of the cuts. We are now more than 120 days in, and we are seeing fundamentals changing. Inventories are on a downward trend, but sporadic week to week.
CNBC: You said last month in your May 9 shareholder meeting that you saw about a 1 million barrels per day draw-down on oil inventories. How long do you see this playing out to get rid of this overhang in supplies?
Hamm: The biggest challenge is 60 percent of refineries don't participate in announcing inventories. Only 40 percent participate. It's an inaccurate mechanism from the start. One week versus another, there's going to be a huge variance. Two inventories that everyone looks at are API (American Petroleum Institute) and EIA (U.S. Energy Information Administration), and those two last week showed a 2-million barrel difference (between one another). They don't even jibe. The fact is, this is a choppy situation, but I believe fundamentals are in place. Demand is slightly outpacing supply. Ultimately the production cuts take effect.
CNBC: The EIA is predicting U.S. oil production could rise to a new high record of around 10 million barrels a day. At the pace U.S. shale production is going, when do you see that record being shattered?
Hamm: It all depends on price. Continental has been disciplined. Operators across the U.S. have been also. Across the U.S., fields have not been turned on. Seventy-five percent of rigs have been laid down in the industry. Entire fields have gone undrilled, waiting on better product prices. Four hundred thousand people were laid off in the industry, so it's going to take a while to get them back. Every operator has a lot of levers to pull and options. It all depends on price.