Time to prioritise gas?
With peak oil approaching, the industry's thoughts are turning increasingly to gas investments
The respective merits of oil and gas investments have been a matter of debate for some time. At the moment, both offer viable long-term opportunities. But with peak oil fast approaching, the industry's focus does seem to be shifting steadily towards gas.
All the high-profile forecasters, from the
International Energy Agency to BP, work on the assumption that gas will remain a mainstay fuel for the power and heating sectors over the next three decades, in support of intermittent renewable energy sources. Meanwhile, the future of oil demand is more uncertain, dependent to an extent on the uptake of electric vehicles and other alternative transport fuels.
How those forecasts are affecting industry thinking is reflected in the results of a survey just published by DNV GL. The consultancy's "
" report suggests a growing percentage of leading players in the hydrocarbons sector believe that gas will play a more important role in the global energy mix over the next decade—86% of the 813 senior industry professionals polled for the 2018 survey agreed, compared with 77% in a similar poll a year ago. Transition in Motion
DNV GL itself believes global gas demand won't peak until the mid-2030s, when gas demand will be around 15% greater than it was in 2017. By then gas will have overtaken oil to become the world's largest single energy source. DNV GL thinks global oil demand will peak in the early 2020s and then plateau through the rest of the decade before declining in the 2030s.
The survey's finding that just under two-thirds of oil and gas sector leaders expect to increase or maintain spending on gas projects in 2018 is in line with a more general recovery in spending on both oil and gas projects, following the recent oil price rally. But DNV GL says the trend in the gas sector is marked.
"It's not a surprise, but there has been uncertainty in the industry about what's really going to happen. There were a lot of large gas projects on the drawing board up to 2014, but many of these were put on hold. Now we've seen signs that things are moving again," Hans Kristian Danielsen, marketing and sales director at DNV GL Oil and Gas told
Cheniere Energy's decision announced in May, to build a third liquefied natural gas train at its Corpus Christi export terminal in Texas and Woodside Energy's ambitions to push ahead with its $10bn-plus Scarborough development and associated LNG expansion in Australia, as evidence of growing confidence in the robustness of the gas sector and of Asian demand in particular.
86% of senior officials polled agreed gas would play an important role in the global energy mix over the next decade
"That is something that would only come from bullish views on the gas market going forward," Danielsen said.
Cheniere's new 4.5m tonnes a year train is the first US LNG project to receive a positive final investment decision since 2015, underpinned by a long-term supply deal for 1.2m t/y with China National Petroleum Corporation.
operatorship Woodside acquired from ExxonMobil in early 2018, is part of a revival of spending on new gas developments in Australia, after the plethora of Australian export projects sanctioned prior to the 2014 oil price crash contributed to a global LNG glut.
Originally Scarborough's reserves, located in offshore Western Australia, were destined to replenish supply to existing export capacity. However, Woodside has ramped up the scale of the planned project, targeting production in 2023, two years earlier than previously planned. The aim is to supply a larger than originally envisaged 4.5m t/y new train at the Pluto LNG facility, due for completion in 2014.
Wooodside's chief executive Peter Coleman
has said the Pluto expansion was "to meet a market gap we expect will emerge from the early 2020s". Oil investment scrutiny
It's far from over for oil, of course, though the industry is going to need to pay attention to the types of oil investments it makes.
"Through the 2020s, you will still have to put on new capacity in oil production. It's not until 2030 that you really have to think about whether you can bring on new capacity, assuming our predictions are right," Danielsen said.
However, even early in the 2020s, long-term oil investments are going to require increasing scrutiny, given question marks over returns in their later phases, when oil demand may be sagging.
"You may then favour a project that has a faster return on investment. It will basically be a risk evaluation about whether shorter-term developments like tiebacks, expansion of existing fields and enhanced oil recovery are a safer investment," he said.
The pace at which oil is displaced by electricity—and potentially other fuels, such as hydrogen—in the transport sector will be at the heart of those assessments. If DNV GL's survey is anything to go by, the industry remains split on how fast that will happen.
When respondents were asked whether the growth in the electric vehicle market would significantly reduce global oil consumption in the next decade, 40% agreed, 40% disagreed and 20% were "neutral" on the issue.
It seems the oil industry has yet to make its mind up on one of the core issues affecting its future.
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