Where will oil and gas be in 50 years?

Oil majors remain bullish about the prospects for the oil and gas sector going forward, despite rising concern about oil demand growth in the mid-to-longer term. BP’s chief economist Spencer Dale, for example, recently said that even under BP’s Rapid Transition scenario of radical switching to cleaner fuels compatible with meeting the Paris climate goals, oil demand would still only be reduced by around 28m barrels per day (MMbbl/d) in 2040 to 80MMbbl/d.

‘If we can produce among the cheapest oil of the 80MMbbl/d demand in 2040, then we can carry on producing that oil,’ he said, when presenting BP’s latest long-term energy outlook.

Even under this worst-case scenario, oil and gas would still provide half of the world’s energy needs in 2040, leaving plenty of growth room for hydrocarbon producers – and other scenarios suggest higher shares. The outlook for gas is more positive than oil, with most forecasters expecting its market to expand rapidly, taking over from oil as the primary hydrocarbon within a decade or two due to its lower CO2, sulphur oxides, nitrogen oxides and particulate emissions, compared to oil and coal.

Focus on efficiency

Above all, the situation is expected to lead to an increased focus on efficiency among oil and gas companies, which must compete for the remaining pool of demand – both among themselves and with the low-cost producers in OPEC and elsewhere. If there is a shrinking market, this will prove tough.

Production costs have already come down sharply since the oil price collapse in 2014 and that trend has been maintained despite the recent recovery in prices – oil and gas companies are increasingly focusing on oil they can develop profitably at oil prices of US$35 per barrel and below. This is despite the fact that most of the easy-to-extract oil and gas (to which most companies have access) has already been produced.

The ability to keep downward pressure on costs while producing from increasingly complex or far-flung accumulations will be a major challenge over future years. Adaptations to shave off costs per barrel are likely to include field development designs that allow for a longer field life and enhanced extraction, as well as modular design, digitalisation and other technical advances.

Shale and offshore focus

There is also likely to be more of a focus on deepwater offshore output and shale oil production as other easier-to-get-at opportunities are exhausted and as shale technology improves. The US is expected to dominate global output growth over coming years, with shale production there likely to account for nearly 70% of all production over the next three decades.

Production from the Permian shale deposit in west Texas alone reached almost 4MMbbl/d in February, and in its reference case, the US Energy Information Agency expects US production to peak at almost 15MMbbl/d in 2027 (and fall to 12MMbbl/d by 2050), while other scenarios show it continuing to rise up to 2040.  

Between them, Western majors BP, Chevron, ExxonMobil and Shell are expected to boost their share of total US onshore supply growth from around 15–20% today to 30–40% between 2020 and 2025, according to Energy Intelligence – with most of that in the Permian – bringing stable finance and a more integrated model to the sector. Shale wells have a shorter productive duration, so there will be plenty of activity in maintaining output.

There has also been pressure to keep upstream costs in check by passing over harder-to-pump, lower-margin reserves, known as portfolio high-grading. Such an approach also fits with the Paris climate goals by implying that less competitive assets will never be developed.

Growth areas

Among the key areas of demand growth over the next 50 years will be petrochemicals, which is the oil demand area that is expected to keep growing for the longest. It will be relatively unaffected by any CO2 emissions regulations, as the CO2 is locked up inside the plastics, although concern over plastic pollution is growing.

The International Energy Agency said in its 2018 Energy Outlook report last year that petrochemicals would account for more than a third of global oil demand growth by 2030 and nearly half of demand growth by 2050, adding nearly 7MMbbl/d by the middle of the century. However, oil refiners will have to compete with an increase in ethane and natural gas liquids produced from US shale, which can also be used as petrochemical feedstock.

Another key growth sector is likely to be LNG, which is expected to see its market size double by 2030. One factor that could extend demand, particularly for gas, well beyond 2030 is carbon capture and storage (CCS), which enables the continued use of fossil fuels without the associated emissions. While oil and gas companies are generally supportive of CCS (for example, Shell’s proposed Peterhead gas-fired power plant CCS), government support is needed. The UK government is backing the technology and it remains a key part of the EU’s plans for decarbonisation. If successful, CCS would mean a guaranteed long-term market for gas.

There has been some CCS progress in Scandinavia. Norway already pipes some CO2 from industrial gas users near Oslo to a depleted offshore oil field. And in February, a carbon capture assessment project was awarded to Aker Solutions for the 230,000bbl/d Preemraff Lysekil refinery in Sweden. The study’s scope includes pilot testing carbon capture from the refinery flue gas and designing a carbon capture plant for the refinery’s hydrogen production unit.

Greener fuels

A third key growth area is biofuels, hydrogen and other low-carbon alternatives to fossil fuels. ExxonMobil, for example, has focused its low-carbon investment on advanced biofuels. It aims to supply 10,000bbl/d of biofuel derived from algae to the aviation sector from a plant in California by 2025 – the technology is scalable up to ‘hundreds of thousands of barrels a day’, according to Vijay Swarup, Vice President for Research and Development at ExxonMobil. He said the company was not interested in niche applications: ‘The pathway here is to get to that large scale.’ Biofuel is already added to gasoline and diesel on both sides of the Atlantic,  but these are not advanced biofuels and rely on the agricultural sector to supply crops.

To avoid the environmental and social issues associated with some of these biofuels, Exxon’s algae would not compete with food crops and could be grown on unproductive land using saltwater and avoiding any vegetation clearance. Some farms may even be able to use waste CO2 to make the algae grow more quickly. The project is being tackled in partnership with Synthetic Genomics, and in 2017 managed to create algae that produced twice as much fat (which is converted into fuel) as it would in the wild, without reducing growth rates.

Norway will be the first country to introduce a 0.5% advanced biofuel mix into jet fuel starting in 2020, rising to 30% by 2030, and others are likely to follow – guaranteeing a market for advanced biofuels beyond specialist applications.

Like all other industries, the energy sector must prepare for a lower-carbon world. It has more to achieve than most, but consumers will still need large volumes of oil and gas in 20 to 30 years, and there is considerable potential for fossil fuels to continue playing a part for many years beyond that, especially in systems where carbon emissions can be removed. 

Image credit | Shutterstock