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Oil and gas will continue to be a necessity despite lack of investment, CEO says

Key Points
  • Given the low level of investments, the world could soon face an oil supply shortage, warns Saudi Aramco
  • Kazakhstan wants a gradual exit from the OPEC's output cap deal
  • Trump's energy policy could deliver growth
Baker Hughes, GE come together to focus on cost per barrel: BHGE CEO

Oil and gas will remain key energy sources despite the presence of shale and other alternative energy resources, the president of oil and gas company BHGE told CNBC on Monday.

"When you look at the energy requirements, the increasing population, we feel there's going to be a necessity from an oil and gas perspective as we go forward," Lorenzo Simonelli told CNBC on the sidelines of the World Petrolum Congress in Istanbul.

"LNG (Liquefied natural gas) continues to grow at 3 to 4 percent, oil continues to grow at about 1 percent, you've got natural gas growing at 2 percent, as you look long term that supply demand balance is going to be there. What we've got to focus on is making sure that we drive productivity through that value chain to let the investments go forward," he added.

Oil and gas firms worldwide have cut their share in investment given the subdued market prices in the last few years. Wood Mackenzie, an energy consultancy, said in May that it expects exploration spending to increase by no more than 10 percent from the recent historic lows.

Given the low level of investments, the world could soon face an oil supply shortage, Amin Nasser, the chief executive of Saudi Aramco, said Monday also in Istanbul, Reuters reported. He added that it is too early to know if other energy resources such as shale gas will be able to develop at a fast enough pace to replace oil and gas.

Floor for oil prices could go lower: Expert

Oil prices rebounded on Monday morning after dropping as much as 3 percent in the previous session. Commodity markets have been nervous over the continuous drilling activity in the U.S. and threats from some countries who committed to the OPEC output cap deal.

Kazakhstan, for example, has said it wants a gradual exit from the OPEC's output cap deal. The country, just like Russia and other OPEC members, pledged to reduce output until March of next year.

"Clearly we look at the price of oil," Simonelli from BHGE told CNBC, "At the same time, it's only one of the data points we look at. What we're focused on right now is really driving the costs of synergy and revenue synergies."

BHGE was formed by the merger of General Electric's oil and gas business and Baker Hughes.

Market players will be watching the upcoming OPEC ministerial committee meeting on July 24. It's expected that the oil group will not discuss any further cuts.

Russia's energy minister Alexander Novak told Reuters on Friday that it is ready to assess new proposals to revise the OPEC deal, if needed.

Trump's presidency can deliver growth

Despite some doubts and controversies hanging over President Donald Trump's presidency, there's still optimism that he will be able to deliver growth for the world's largest economy, Simonelli from BHGE told NCBC.

"We're still early on in the actual presidency. You've got a number of initiatives that have been started, you mentioned the energy policy, you've got tax reform, health care, we've got to see how those come through over the course of the next few months," he added.

At the moment, the U.S. is trying to expand its LNG exports to Europe. Last week, Trump announced plans to increase deliveries to Poland.

"I think right now there's still a sense of optimism with regards to the direction of energy, there's optimism with regards to the aspect of tax and if we can get some of these reforms through, you'll actually see the economy continue to grow," Simonelli added.

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