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Peak Oil Demand Is Coming, Will Transform Exploration Sector

Consumption

The global trend toward alternative energy sources and shifting stakeholder sentiments could mark the demise of the oil and gas exploration sector. It may also represent an opportunity to transform.

This is according to a new report published by Wood Mackenzie, a global research firm that has been analyzing the oil and gas industry since 1973. The report concluded that a number of driving forces indicate that peak oil demand is likely to manifest within the next 20 years—removing the need to tap many of the world’s undeveloped fields.

“But the pace and nature of the energy transition is highly uncertain,” noted Andrew Latham, vice president of exploration at Wood Mackenzie and author of the report. “The world might move more quickly to deeper decarbonization. Even if this happens, we still see a chance for exploration to successfully re-invent itself and retain an important role.”

Wood Mackenzie projects two scenarios in the report. The most probable scenario, also the most positive one for explorers, forecasts a supply gap of 16 million B/D by 2040. This base case sees that the current industry spending of about $40 billion per year is sustainable and enough to meet demand.

The other model hinges on a more aggressive outlook for global decarbonization. This scenario predicts that rising adoption of electric vehicles, new biofuel mandates, and a reduction in single-use plastics will slash oil demand by as much as 10 million B/D by 2040.

Under these conditions, all but 6 million B/D of global demand would be met by existing oil fields. Latham characterized the confluence of these factors as an “existential threat to exploration.”

However, the report argues that the clearest risk facing the exploration sector is coming from inside the house. If production-boosting technologies in existing fields were to yield only a 2% uplift in recovery factors, the need to find 6 million B/D of new reserves could be canceled altogether.

“Given that we might be on the cusp of a new digital technology revolution—advanced seismic imaging, data analytics, machine learning, and artificial intelligence, the cloud and supercomputing—such an improved recovery scenario is hardly fanciful,” Latham wrote.

Reacting To Change

The industry’s license to operate is also under increased scrutiny, a trend that shows no signs of letting up. On the financial side, investors have started their slow retreat from the upstream business, pushing large oil companies to redirect cash from exploration budgets into shareholder dividends or crowd-pleasing investments in zero-carbon technologies.

Meanwhile, governments around the world are considering stricter limits on oil and gas activity, including potential bans on future exploration.

Oil companies can attempt to mitigate such outcomes by adopting technologies or practices that lower the carbon footprint of operations. Examples include using renewable energy to power production equipment and taking steps to reduce gas flaring. The industry’s deep understanding of subsurface fluid dynamics has also opened the door for it to play a major role in future carbon sequestration projects.

While acknowledging the uncertainty of how fast the energy transformation will unfold, the report determines that the industry will never return to the level of exploration activity seen during the prior decade.

In light of these possibilities, the consultancy’s report advises that conventional exploration companies focus on the highest-quality prospects, and those with shorter cycle times. Following this would place a priority on offshore developments where infrastructure is in place, allowing satellite fields to be cost-effectively tied in, or in onshore fields where phasing in new developments is even easier.

Explorers will also increasingly turn their attention to natural gas discoveries, despite the world’s abundant supply of associated and stranded gas. Using its more severe decarbonization model, Wood Mackenzie still forecasts a 15% increase in natural gas production over the next 20 years.

If all these changes are realized, the consultancy’s report predicts that the exploration sector will relinquish its role as the oil industry’s “primary engine of growth,” and take on the new responsibility of improving existing portfolios.

Download the report here: “Why Explorers Are in the Grip of an Existential Crisis”

Source: Wood Mackenzie

Wood Mackenzie: Peak Oil Demand Is Coming, Will Transform Exploration Sector

SPE.org



17 Comments on "Peak Oil Demand Is Coming, Will Transform Exploration Sector"

  1. Cloggie on Fri, 5th Jul 2019 2:18 am 

    “The report concluded that a number of driving forces indicate that peak oil demand is likely to manifest within the next 20 years”

    Make that 10 years.

  2. Antius on Fri, 5th Jul 2019 7:08 am 

    This article draws the right conclusion for the wrong reasons. ‘Alternative’ energy will be irrelevant in driving peak oil demand. Oil demand will peak due to declining prosperity, leading to lack of affordability of products and services that require the use of oil. Oil demand has already peaked in OECD countries and has been slowly declining since 2008. This has more to do with rising inequality, falling car ownership by the young and a reduction in the number of miles driven per person. The next recession will be 4 times more severe than the recession of 2008 and will greatly accelerate these trends by making almost everyone poorer.

    Electric car technology will not be useful in reversing this trend because it has higher capital costs and is less affordable than petroleum powered vehicles. It is also substantially more cumbersome. The writing is already on the wall.

    https://www.bbc.co.uk/news/business-48865702

    I addition, there is insufficient supply of many rare elements to allow electric cars to substitute for existing petroleum powered vehicles.

    https://tinyurl.com/y6j4xr5c

    Also, it is worth remembering that the small automotive sector is only a small proportion of total oil demand – about one quarter. Real goods transport, with the exception of small contributions from electric rail, is almost entirely powered by diesel – which passed its production peak in 2013. Did anyone notice that global trade volumes started to peak around the same time? Coincidence?

    The same conclusions can be drawn of renewable electricity. Because this typically requires fossil fuel back-up, curtailment and storage to meet a varying demand pattern; it is inevitably more expensive than legacy fossil fuel and nuclear power production. Hence, it is useless at mitigating any problems stemming from rising power prices.

    Anyone selling you a vision of the future that involves new technology to allow you to maintain your existing lifestyle and wealth levels is almost certainly selling you snake oil. Our per capita disposable incomes have already declined substantially since about 2003. The average American and European is already substantially poorer now than he was 15 years ago. This is not something that might happen; it is something that already has happened and will continue to happen.

  3. Cloggie on Fri, 5th Jul 2019 7:32 am 

    Peak oil demand could be and probably will be considerably hastened if war breaks out in the Gulf, demolishing refinery and production capacity that can’t be quickly restored, driving prices up greatly.

    (You can argue if this is peak oil demand or supply)

    A national e-car sharing pool (autonomous or partially passenger driven) could do a lot to counter the effects Antius listed.

    https://www.dailymail.co.uk/news/article-7216267/Iran-accuses-Britain-piracy-tanker-seized-Gibraltar.html

    “Senior Iranian politician warns Iran has a ‘duty’ to seize a British oil tanker if the vessel intercepted by marines in the Mediterranean is not released”

  4. Antius on Fri, 5th Jul 2019 8:32 am 

    “A national e-car sharing pool (autonomous or partially passenger driven) could do a lot to counter the effects Antius listed.”

    It would be helpful in maintaining personal mobility at a more affordable cost, as average incomes continue to decline. But I think there are good reasons to be sceptical of autonomous road vehicles. (1) It would appear to be some years away in terms of large scale deployment – it is not yet a practical technology; (2) Even when it does become practicable, it will take time to scale up; (3) It will only eliminate some fraction of the 25% of oil demand that is associated with private transport, by allowing short range vehicles to be tailored to short journeys.

    We are talking about something that might be useful, to some extent, at some point in the future; assuming we can maintain the growth in technological and industrial capability needed to bring it to fruition. The real problems of declining prosperity are with us right now; have been with us for some time and the trajectory of decline will increase soon. They are a direct result of the rising ‘energy cost of energy’ which is slowly squeezing the life out of human economies. These are after all, systems that allow us to convert surplus energy into goods and services that are useful to humans. If surplus energy starts to decline, prosperity begins to decline.

    Globalisation has made this situation worse, because it locked us into an economic system that could only continue to work so long as energy remained cheap and debt remained serviceable. Since 2008, the only way that the western world has avoided collapse is by dropping interest rates to sub-inflation values. This prevented an outright collapse in asset prices, at the expense of exploding debt levels and a monetary environment that encouraged speculative practices and destroyed the value of investment. The elites bought themselves a little more time by stealing from our future. Unfortunately, the future is now here and the bill is due.

  5. Davy on Fri, 5th Jul 2019 8:38 am 

    “Why solar power can’t save us from the coming energy crisis”
    https://tinyurl.com/y5noxyw4 energy skeptic

    Preface. Embedded within the posts below are many reasons why solar electricity can’t replace fossil fuels. All solar and wind do is add to the giant fire of burning fossil fuels with just a tiny bit more power, about 4% of all the power we use. But that will end at some point when the maximum grid integration level for a given area is reached

    “Renewable EROI must include storage, low capacity factor, wide boundaries”
    https://tinyurl.com/y3yenkn5 energy skeptic

    “Trainer argues that when you consider how the capacity factor of wind and solar are to fossil plants, seasonality of wind and solar the number of facilities is quite large to deal with the intermittency problem. Therefore the storage (hydropower, batteries, biomass, etc) must be included in the EROI calculation, the renewable system can’t operate without them. Plus the capacity factors of wind and solar are getting lower, because the best sites have already been built on, so the future capacity factor will be less, not equal or more than today’s. The lifetime of 25-30 years is questionable, plus the erosion of their performance over time usually isn’t included (i.e. dust impairing solar panels). Trainer makes a case that boundaries need to be as wide as possible, including the EROI of the workers, transmission, and so on. Prieto, Hall and others have pointed this out too. In summary, Trainer makes a good argument that the EROI values for wind and solar are far lower than commonly assumed, and that what would be more effective is reduction in demand, De-growth. He writes that “a core claim of The Simpler Way project (2017) is that a sustainable and just society based on 100% renewable energy supply is desirable and could be easily achieved, but only if there is a radical transition to new settlement patterns, economies, political systems, and most difficult of all, new values and non-affluent conceptions of the good life”.

  6. Davy on Fri, 5th Jul 2019 8:43 am 

    I highlighted these two great discussions by Alice the energy skeptic. It is my opinion renewables are a vital element to our evolving energy portfolio but unfortunately an uneconomic one in many applications. Unless we can change behavior, we are going to hit a wall beyond which we create stranded resources that otherwise could be more efficiently applied to the predicament of decline. IOW, should we be devoting so much to a failed energy paradigm that current renewable policy represents? The failure being not in the technology but in the improper application of the technology both economically and behaviorally.

    We can consider the past efforts as the development phase where the technology and its application were mastered. The technologies of wind and solar are potent and effective. The problem is now what we are expecting out of them. We want to replace more potent energy sources and continue to live as an on demand 24/7 civilization. It is unclear we can live differently. It is this 24/7 on demand way of life that is so effective at creating economic wealth that produces technological advancement. It is clear to me that behavior must change to incorporate intermittency and seasonality of renewables into a greatly enhanced renewable dominated energy system. It is not clear if the degree of behavioral change is possible and still maintain the productive ability of our advanced economies. This means we will be forced to continue fossil fuels in many applications because renewables will fail many applications. It means where we pressure the system with unrealistic demands of a green grid, we may be just throwing good money after bad.

    A better effort may be with a two-track system. We should continue to maintain certain areas with 100% demand readiness which require fossil fuels. These areas are those vital areas of control and production. In other areas that can live in intermittency. Many areas could easily go intermittent without dramatic standard of living declines as long as 24/7 areas are maintained providing the services need to maintain a high standard of living. Many other areas should not be developed into traditional developed economies. This means the usual sustainable development policies are just a waste. Leave the 3rd world alone because once their current sustainable arrangements are replaced with development, they will then be set up for failure.

    These ideas come with the acknowledgement that 100% renewable world is not possible. This means eventually energy decline and the environmental decline associated with fossil fuels are what the future has in store. This means the behavioral changes needed for the road ahead is the embrace of collapse. We acknowledge the economy can’t transition nor can our energy system. Instead we adapt the system for this decline to collapse. If we acknowledge an inevitable decline then collapse must be a consideration because the current system is growth based. This may not mean all areas but the global world we now know at some point is not sustainable and will collapse. We then adapt behavior accordingly. The focus is on adaptability and mitigation which is saying building life boats. It means triage of bad behavior. It means salvaging the best technologies and knowledge from both the old ways and the new into a hybrid living arrangement. Renewables can be part of this but also adapted behavior.

    This is likely not going to happen as it should in a proactive effort that properly invests scarce resources. It will instead follow the pattern of late stage capitalism usual combination of good and bad investment by market forces driven by profit. It will also come from public policy pushing solutions that are often not realistic. This does not mean solutions will not be arrived at but instead it means we will have less results because of improper behavior and technology applications. At a time of overshoot this means the likely break up of the status quo earlier. In this respect you as an individual can get ahead of this curve and do the proper behavior and technological adaptation to be further ahead when this macro process accelerates as it likely will at some point. The Seneca Cliff is a historical reality. Decline happens much quicker than growth. Beat the rush and do it with meaning.

  7. Antius on Fri, 5th Jul 2019 9:24 am 

    Two interesting links, Davy. Many thanks. They both confirm what I have long suspected:

    ‘In the absence of abundant fossil fuels; power can be produced, in the large amounts needed for an industrial civilisation, only by using nuclear reactors.’

    That’s assuming that industrial civilisation is what you are interested in preserving. Trainer suggests that de-industrialised, decentralised and more locally self-sufficient economies are a better long term choice. The price to be paid is much lower income levels all around and I would suspect, a greatly reduced global population. It is difficult to see how we could produce enough food to support everyone using the localised deindustrialised economies that Trainer envisages. I cannot escape the feeling that it is going to be hard, cold, hungry, short and generally miserable existence; attempting to eke out a sparse vegetarian lifestyle on an undersized patch of land.

    I can’t help but wonder if our problems might not be solved if we simply stopped being so frightened of nuclear energy. Maybe we can build things like this and dump this depleted burned out rock, before it dumps us.

    https://en.wikipedia.org/wiki/Project_Orion_(nuclear_propulsion)

  8. intellectual nematode Alert! on Fri, 5th Jul 2019 12:21 pm 

    Davy on Fri, 5th Jul 2019 8:43 am

  9. JuanP on Fri, 5th Jul 2019 12:36 pm 

    I am an illegal alien nematode bitch

  10. More Davy Identity Theft and Child Like Behavior on Fri, 5th Jul 2019 1:37 pm 

    JuanP on Fri, 5th Jul 2019 12:36 pm

  11. Blah Blah butt breath on Fri, 5th Jul 2019 2:56 pm 

    More Davy Identity Theft and Child Like Behavior said JuanP on Fri, 5th Jul 2019 12:36 pm
    More Davy Identity Theft and Child Like Behavior said JuanP on Fri, 5th Jul 2019 8:48 am JuanP on Fri, 5…

  12. Kenz300 on Fri, 5th Jul 2019 3:19 pm 

    Oil companies and all fossil fuels companies need to move away from carbon and into renewables if they want to survive.
    Time to become “ENERGY”companies and NOT Oil, Coal or Gas companies. Financial institutions and insurance companies are backing away from fossil fuels. The risks are growing and they are a bad investment.

  13. More Davy Sock Puppetry and Child Like Behavior on Fri, 5th Jul 2019 4:08 pm 

    Blah Blah butt breath on Fri, 5th Jul 2019 2:56 pm

  14. nostradamus on Sat, 6th Jul 2019 8:53 pm 

    The world is using more oil than ever. 100 million barrels a day. There is no sign that oil demand will peak anytime soon, if ever.

  15. nostradamus on Sat, 6th Jul 2019 8:57 pm 

    “If the current mix of policies continues, the IEA expects world oil demand to rise for at least the next 20 years, heading for 125 million bpd around mid-century.”

    https://www.independent.co.uk/news/world/africa/world-oil-use-100-million-barrels-rising-global-warming-a8565281.html

  16. Duncan Idaho on Sat, 6th Jul 2019 9:21 pm 

    If the current mix of policies continues, the IEA expects world oil demand to rise for at least the next 20 years
    Well they need to exceed November of 2018 first, as that so far is the “peak”.
    Not going to happen in 2019, as we are flat.
    We shall see if 2020+ can pull it off—–
    The IEA thinks so– but it is future fiction.

  17. makati1 on Sun, 7th Jul 2019 3:10 am 

    Oil demand may rise, but the NET energy from it will decline, as it has been for the last 10-20 years. Frak oil is NOT petroleum. “Liquids” are NOT petroleum. 100 barrels of Pabst Blue Ribbon are NOT equal to 100 barrels of 12 year old Chivas Regal Scotch. Not even close. Figures lie and liars figure. Especially if they are in the US.

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