The crucial role of technology in reshaping the energy sector
For a century and more companies in the oil and gas industry have been in the business of resilience and survival in the face of war, expropriation, embargoes and sudden falls in demand caused by economic recessions. The main factor in ensuring that the industry survived has been technology. At different times technology has opened up previous inaccessible reserves (such as the oil and gas beneath the North Sea or the shale deposits of North America) reduced costs and opened up new markets. The challenges now are different but the source of the answer to those challenges is likely to continue to lie in the application of technologies which change the boundaries of what is possible.
Historically the advances in oil and gas technology have not been about eureka moments or revelations of previous unknown scientific truths. Most have been incremental changes driven by the need for answers to immediate needs.
Looking forward the technical advances of the 2020s are also likely to be incremental and will be defined by the imperatives now facing the industry.
The first is how to remain profitable in a period when supplies are plentiful and prices are low. There has been some stabilisation of global oil and gas markets over the last six months with Brent crude rising to over $50 a barrel in the last few weeks. But even at that level, prices are still less than half what they were seven years ago and are still dependent on the quota system imposed by OPEC and its allies which has taken over 7 million barrels per day of production off the market. Prices are helped too by the reductions in production caused by the political crisis in Venezuela and the sanctions imposed on Iran. All those readily available supplies overhang the market as does the significant volume of shale oil currently locked in by US producers and the substantial volumes of stocks built up by the Chinese and others when the price was low. The excess of supply will set a cap on oil prices for some considerable time to come. The industry cannot rely on being rescued by rising prices and therefore needs technology which can reduce the costs of production and restore viability to the many projects currently suspended and waiting for investment approval.
The second longer term challenge facing the industry is how to control emissions in response to the growing concern about climate change. A host of countries around the world, including most recently major Asian economies such as Korea, Japan and China, have committed themselves to eliminate the bulk of their emissions of greenhouse gases over the next three decades. The fact that most of those Governments have little or no idea how they will achieve those goals puts more pressure on the industry to come up with answers. As the post Covid economic upturn will demonstrate the world’s need for oil and gas continues to grow and as yet there is no reconciliation of that need with the objective of reducing emissions.
Multiple technologies will be needed to meet these challenges. The good news is that many are already under development or within reach.
Digitisation is front and centre – increasing recovery rates through precise reservoir management, and improving the productivity through ever more accurate seismic, drilling and production technologies. The ability to monitor and analyse data will enable the industry to track and reduce emissions, including crucially emissions of methane.
If the use of oil and gas is to be made compatible with ambitious net zero emissions targets, Carbon Capture and Storage costs will need to be reduced. But the burden of CCS will only really be lifted if the economics of the process can be rebalanced by finding commercial uses for the carbon. The search for such solutions is well underway with products such as carbon nanotubes, industrial aggregates or a new generation of chemicals are now within sight of commercial viability.
If natural gas is to retain its role in providing heating and industrial power to sectors where electrification is currently unlikely, lower cost CCS will be needed to justify gas as a source of hydrogen, as will systems capable of ensuring that hydrogen can use existing gas distribution networks safely.
The reduction of emissions will need to be achieved at every stage in the supply chain from exploration and production through to consumption. The oil and gas industry may not control every link in that chain, but companies will need to be able to limit and verify the carbon impact of the products they supply if the industry is to thrive.
But resilience and survival are not just about improving the economics and reducing the environmental impact of oil and gas. The industry also has to adapt to the fundamental change in the energy mix which is taking place and to find new sources of competitive advantage for the future. For companies which plan decades ahead that means taking investment decisions outside their existing areas of knowledge and competence. The major European energy companies have all signalled that they see the change coming but none have yet provided a convincing explanation of how they will maintain their value in a low carbon world. That too will come down to an understanding of multiple technologies – from batteries and energy storage to long distance grids, biofuels and the conversion of waste into power.
Technology will reshape the nature of energy supply and consumption over the next decade – by helping to protect existing value but also by defining how the world is going to meet the energy needs of a global population which by 2030 will be over 9 billion. The energy sector will be reshaped in the process and the companies who can build a competitive advantage from the technologies involved are likely to dominate the industry for the rest of the 21stcentury.