New Dynamics Ahead For Energy, Oil

Niehls Bohr’s words resonate as the world looks to its energy future. With the Earth’s population at seven billion, oil prices stressed by turmoil in North Africa and the Middle East, global warming concerns, the rise of China and India, and the shadow cast by the tragic events surrounding the Deepwater Horizon, the industry is hearing a call to action that is unambiguous.

From uncertainty to opportunity

Against this backdrop of uncertainty and the inevitable anxiety of the unknown, there is a parallel world full of promise heralded by the emergence of a highly competitive, diversified, and tech-savvy energy market both in the US and around the globe.

Currently, the US imports roughly 20% of its total energy needs – estimated at around 45 MMboe/d. The impact is significant and burdens the US balance of payments. What is less widely recognized, however, is the overall inefficiency of energy use. Approximately 61% of energy produced in the US is lost. On average, only one out of three reservoir barrels is recovered, which translates to an overall efficiency of only 13% for oil that is converted to a useable form.

On average, only one out of three reservoir barrels in the US is recovered. (Source: National Petroleum Council)

Looking ahead, energy efficiency – both generation as well as consumption – offers a wide-open landscape for business opportunities, especially to those enterprises that can deliver superior efficiencies in capital deployment. The industry is ripe for a fresh look at energy efficiency.

Technology reshaping future of oil

Technology is reshaping every facet of people’s lives – from Twitter to iPhones to cars that self-park. The energy world is similarly affected by a wave of change powered by new technologies. The resurgence of US liquids production in recent years (5.5 MMgal/dand trending up) led by Gulf of Mexico developments as well as the steady growth of unconventional gas production’s six-fold increase over the last two decades to approximately 32 Bcf/d in 2010 are clearly attributable to advances in technology. To some degree, the return also is due to more robust, albeit volatile, prices.

Some estimates place global unconventional gas resources at about 33,000 Tcf. (Source: Journal of Petroleum Technology, December 2010, www.spe.com/jpt)

The energy industry can expect continual advances in diagnostic and production-oriented technologies allowing greater command and control of wells tens of thousands of feet underground. Saudi Aramco’s new-generation fields such as Shaybah, Haradh, and Khurais bear the latest testimony of multifold and sustainable improvements in well productivities as a direct consequence of new technologies.

The planet is endowed with plentiful sources of gas and oil, conventional as well as unconventional. Some estimates place global unconventional gas resources at about 33,000 Tcf (roughly 5.5 Tboe). The outlook for liquids is no less promising. At current rates of global consumption, there are sufficient supplies to last into the 22nd century.

The interesting, and arguably not obvious, consequence of these technology advances is that they generate efficiencies on both the supply and consumption sides of the energy equation. Thus, while the global demand for energy will continue to grow, the makeup of the global energy pie has yet to be determined. Oil will be a key player, but its share will depend on how well it does against its competition – fossil, non-fossil, or renewables – on three benchmarks: 1) financial, 2) environmental and safety, and 3) public perception.

While the Deepwater Horizon accident was a tragedy, it also was a critical milestone, irreversibly changing the entire risk assessment framework of the industry on all three benchmarks.

At current rates of global consumption, there are sufficient liquid hydrocarbon supplies to last into the 22nd century. (Image courtesy of Quantum Reservoir Impact LLC)

Minimizing carbon footprint and resource stewardship (a Bill of Rights) likely will become the new imperatives for the energy industry. Slashing the current costs of carbon sequestration by an order of magnitude, for instance, offers a worthwhile grand challenge to the R&D and technology communities in oil and gas.

Transitioning from peak supply to peak demand

The world already has entered a new energy era that is dramatically more competitive, diverse, and high-tech than the past. Oil and gas, conventional and unconventional, have to compete head-to-head with a host of fossil-and non-fossil-based competitors, namely coal, nuclear, and renewable alternatives such as solar and wind.

Oil’s role as the preeminent form of energy will be challenged by economic, environmental, and public perception metrics that are ever-changing. The world has moved into the peak demand mode away from the past paradigms of peak supply. Global consumers are the kings and will continually reposition the market.

This new age offers huge opportunities for new companies that can deliver superior returns on capital deployment across all aspects of the energy business – exploration, extraction, and consumption. The age of 13% usable energy efficiency as the norm is over. The future energy picture for the US or the planet is not constrained by the availability of supply – either for fossil or non-fossil fuels – but rather by the efficiencies of generation and consumption.

Editor’s note: This article is based on a speech given by the author at the Association of Corporate Growth luncheon on Jan. 11, 2011 (available at www.qrigroup.com?).