SPE ATCE: Panel draws industry roadmap to 2040

A correction was made to a quote in this story on Sept. 29.

Panelists at the opening general session of the Society of Petroleum Engineers’ Annual Technology Conference & Expo (ATCE) were asked to discuss how the oil and gas industry will meet energy demand that is expected to rise 32% by 2040.

How will the industry adapt in the face of the current commodity price environment that has led to decreased investment? In 25 years, what will the energy mix look like and what kind of companies will be providing that mix?

SPE Pres. Helge Hove Haldorsen compared the very question of a 25-year roadmap as a journey into the unknown. As he welcomed attendees and panelists, he suggested the industry should navigate this time of urgency and uncertainty by maintaining an optimistic tone, having a grand vision, working together, and remaining tenacious.

Panelist Scott Tinker, director of the Bureau of Economic Geology, suggested that such a roadmap has been difficult for the oil and gas industry to draw in the past. “Our ability to forecast is off,” he said humorously. “We never get it right.”

Energy mix

Tinker said, however, that one thing has not changed significantly in the last 35 years of the industry: the energy mix has stayed remarkably the same. Hydrocarbons make up the majority and that should hold true 25 years into the future.

This holding pattern in energy mix is driven by energy security or, more succinctly, insecurity. Hydrocarbons are dense and relatively cheap. As other fuels or energy sources enter the market they will have to compete on that level: are they readily available, reliable, and sustainable?

Panelist Bernard Looney, chief operating officer, production, for BP LLC, agreed with Tinker’s assessment of the near-term continued dominance of fossil fuels. More important to Looney was discussing how operators can navigate the short-term market realities to reach 2040.

“What we are seeing [today] is the confluence of two factors: costs that were out of control and a 50% price drop,” he said. Looney’s answer is to control what you can control by simplifying processes and standardizing solutions and designs. He cited the fact that BP has brought down the cost of its Gulf of Mexico Mad Dog II project to less than $14 billion from $20 billion. “Can we do a project [that size] for less than $10 billion? Can we do more with less,” he asked.

Demand savior

When asked if demand could be the savior that bridges the divide to 2040, panelists disagreed. Jorge Leis, director of Bain & Co., said, “We should not look to demand as a salvation.” This is because, even though the US offers a flicker of hope in terms of demand, there has not been a hoped-for recovery in Europe and China has decelerated growth.

Adif Zulkifli, senior vice-president of corporate strategy and risk for Petronas, said there will be growth. India and Indonesia are burgeoning markets and despite deceleration, China’s gross domestic product continues to grow at 5%/year.

Panelist Jarand Rystad, managing director Rystad Energy, said that with or without demand, the industry can’t afford to continue a dangerous course of layoffs and cuts in investments. So far this year we have seen the biggest drop in investment in the industry’s history. This will go on through next year as prices continue to fall. But at some point, said Rystad, you can’t continue to lose expertise as people go find jobs in other markets. “It’s easy to lay them off but not bring them back. There could be cost inflation again as a result,” he said.

Looney agreed in part but said there is a distinction between activity cutting and doing the same activity at lower cost 30-50% lower cost. Layoffs have happened, he said, but many companies like BP have committed to their recruitment and retention programs. “Tough actions are necessary, but efficiency is the key. Don’t create an even bigger problem down the road.”

Industry profile

Panelists were asked what will happen if demand continues to increase and the oil and gas industry is unable to fill that demand by 2040. What will the industry look like should it change to meet a changing market?

“We are probably entering an era where we will see a little structural change due to legislation around climate change,” said Leis. “On the power-generation side, there are new technologies that will impact fuel choices. It’s happening and will continue to happen.”

Leis cautioned oil and gas companies, however, to stick to their guns and do what they do best. Just be cognizant of how new technologies and fuels can upset the paradigm.

Tinker said the sun and wind are resources just as any fossil fuel and should be added to the mix, but tend to bump into problems of scale. Costs tend to increase and this will slow alternative sources ability to answer demand.

Leis agreed saying renewables will have to obey fundamental economics. Just because you add something new doesn’t mean an old resource goes away. As natural gas replaced coal in power generation in US, it found a market in Europe because it was high quality low cost, he said.

Zulkfili echoed this sentiment. “In Asia, we don’t have the luxury to switch to these alternatives. For emerging countries, it’s about affordability and availability which equal security. For now that is oil, gas and coal.”

Contact Michael T. Slocum at michaels@ogjonline.com.

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