While renewables might appear to have a charge in their batteries, the oil and gas industry is still very much alive and kicking, argues Topaz Energy and Marine chief executive René Kofod-Olsen
“The reports of my death have been grossly exaggerated,” is a quote often attributed to the great American novelist Mark Twain, in response to rumours of his demise. The same could be said of the oil and gas industry.
Much has been written on the rise of renewable energy and electric cars and the threat they pose to the future of the hydrocarbons industry. But while they are certainly changing the playing field, critically, oil consumption is still expected to increase in tandem with a rising global population and the GDPs of developing countries. By 2040, it’s expected that more than half of the world’s energy needs will still be met through oil and gas, with renewables accounting for less than a quarter of the primary energy mix, even though they are expected to record the fastest growth rate.
Positive industry fundamentals for affordable hydrocarbons
According to OPEC’s forecast, by 2040 oil demand will hit 111.1M b/d, a more than 16% rise on the 95.4M b/d used in 2016. BP projects 109.4M, while the International Energy Agency (IEA) forecasts a less bullish, but equally healthy 105M b/d.
Meanwhile, improvements in recovery techniques indicate that supply-driven peak oil – predicted by the IEA’s chief economist back in 2009 to happen in 2020 – is still a long way off. And new discoveries continue to be made. For example, Egypt’s Zohr Field, discovered just three years ago, is one of the largest gas discoveries ever made, with 850Bn m3 of gas in place. Egypt and Saudi Arabia are also looking to explore potential within the Red Sea, now that maritime borders with Saudi Arabia have officially been demarcated.
Encouraged by Egypt’s success, Lebanon signed its first contract with an international oil company this year to explore for hydrocarbons within its territorial waters, while just last month, Bahrain announced its largest oil discovery since 1932. In both East and West Africa, improving infrastructure and trading conditions are opening up opportunities for oil and gas development, for example the Greater Tortue off the coast of Senegal and Mauritania, estimated to hold over 708Bn m3 of gas.
This is not to mention the global resources that have been discovered, but are as yet still economically unviable. Estimates are that 40-60% of proven gas reserves remain ‘stranded’; much of it in Russia, which has the most.
Emerging markets driving consumption and signs of renewal
While we cannot ignore the signs that the use of oil for electricity generation and car fuel will shrink over the next 20 years, certainly in more developed markets, the decrease will be more than compensated for by an increase in demand from other sectors.
Higher oil consumption is forecast for road freight transport, aviation, shipping and petrochemicals sectors. Meanwhile, the outlook for the gas sector is even more positive. The IEA is forecasting natural gas usage to jump 45% by 2040 on the back of higher demand, particularly from industrial sectors.
Globalisation is eradicating extreme poverty and increasing the purchasing power of developing nations, with Asia taking a lead. China and India are currently the world’s fastest-growing energy consumers, thanks to their strong economies and expanding middle classes. They alone are expected to account for 50% of total energy demand growth up to 2040.
These projections are good news for suppliers to the hydrocarbons industry. In order to sustain future demand and to compensate for natural declines in output, oil and gas producers must continue to invest in their existing assets, as well as to explore for and develop new fields. In 2016, consultants Deloitte put a figure of US$3Tn as the minimum E&P investment needed over 2016-2020, to sustain output and reserves at present levels.
Fortunately, these stronger and stable oil prices that we are seeing should enable spending plans that have stalled due to the oil crisis. And what’s more, prices are almost three times higher today than in January 2016, when they hit a 13-year low.
Global onshore exploration and production spending is already rebounding, and analysts are expecting steady growth in the offshore sector from 2019. The Norwegian consultancy Rystad Energy is forecasting the offshore market to recover to US$230Bn in 2022, after several years of falling investment, expected to bottom out at US$155Bn this year. Although US$230Bn is still lower than the 2014 high of US$335Bn, it is an indication of steady recovery.
And in some geographies, such as West Africa, we have already seeing signs of improvement, and are benefiting from the surge in offshore activity on the back of these higher oil prices.
In 2012, the EIA estimated that the Caspian region – which connects central Asia to Europe and Russia to the Middle East – produced around 3.4% of global crude oil. A stronghold of our operations, the Caspian offers significant opportunities following recent discoveries and expansion projects. For example, in 2015, Topaz won a substantial contract to transport hundreds of modules along the Russian rivers to Kazakhstan’s giant Tengiz oil field as part of a future growth project.
The oil and gas industry is far from coming to a standstill, it is in constant evolution. Extraction methods continue to improve and in deference to the environment, companies strive to limit the impact of their operations; a point not always readily acknowledged. Looking at this data and global trends, the long-term future of the offshore industry looks promising and offers a wealth of opportunity to those players willing to adapt and innovate to service its changing needs. And in turn, it offers challenging and rewarding career opportunities not only in Silicon Valley, but across the oil and gas sector.
While renewables might appear to have a charge in their batteries, the oil and gas industry is still very much alive and kicking.