“Global energy demand remains strong and growing, but abundant supplies of oil and gas are now a fact of life. As a result, the economics of the past are changing,” says BP chief executive Bob Dudley.
Indeed, the once-popular idea of the world running out of oil in the future has been replaced by discussions about when exactly oil demand is likely to start declining. BP chairman Carl-Henric Svanberg suggests oil consumption could peak within the next 20 years, as a result of the world using more renewable energy and thanks to technological advances and efficiency in all fields of life, from engines to electric vehicles.
Just last week, the government of India — the country with the fastest growing oil demand — said it plans to phase out gasoline and diesel cars by 2030. An aspiration rather than a likelihood, perhaps, but telling nonetheless.
At the end of the day, the Stone Age did not end because the world ran out of stones, as Total chief executive Patrick Pouyanne has recently reminded participants of industry conferences, repeating a quote attributed to a former Saudi oil minister.
But, future expansion of the role of renewables and electric vehicles aside, the world already found itself awash with oil supplies in 2014, largely thanks to the speedy rise of US shale oil.
US onshore production did take a hit – albeit with a multi-months delay – after Opec decided at the end of 2014 to protect its own oil market share and let oil prices drop freely. But once Opec and a clutch of non-Opec producers moved late last year to curb their production in an effort to support prices, the resulting relatively moderate price rises were enough for US shale oil output to quickly head back up.
The Paris-based International Energy Agency (IEA) this week issued another upgrade to its total US crude production estimates as US shale oil output is booming again. The IEA now expects US crude production to end this year 790,000 b/d higher compared with the end of 2016.
“Such is the diversity and dynamism of the US shale sector that our numbers are likely to be a moving target as 2017 progresses,” the energy watchdog said. It probably means further increases to the US supply forecast, as the Opec and non-Opec 1.8mn b/d output cut deal is likely to be extended beyond its initial six-month period, propping up oil prices.
But there is a catch. While potential supplies of oil and gas are likely to remain abundant compared with demand in the longer term, the world could still end up facing supply shortages in as little as two to three years’ time, according to various oil and gas executives and the IEA.
Saudi Aramco chief executive Amin Nasser explains that as a result of lower oil prices in 2014-16 —they are now half the level of where they were three years ago — around $1 trillion of investment disappeared from the market over the period as projects were either cancelled or deferred. This will be felt in 2020 and beyond, as conventional oil and gas projects take several years to develop, he says.
Right now, “definitely shale oil is helping in North America,” Nasser told a conference in Paris at the end of April. “It is coming, the number of rigs is doubling, efficiency is increasing. That is why you will see more production. However, that by itself is not enough.”
Globally, natural decline of output caused by the depletion of producing fields stands at about 5pc/yr now, meaning companies need to be bringing as much new capacity on stream to at least stand still, leave alone growing output to meet growing demand.
“You can bring it two ways: through infill drilling, which will actually accelerate your decline, or through [conventional, non-shale] megaprojects, which have longer plateau and much lower decline,” Nasser said. “And that is important, because what we need in the industry is these megaprojects that would mitigate the decline over the long term and continue to have it at normal level. Otherwise the decline will accelerate with time, and… would be closer to 10pc, which would be difficult to compensate for over the long term.”
Oil and gas companies hope they have learned from past mistakes and are doing enough to adapt to the new economics of the industry, come what may.
“Oil and gas will remain important for decades to come – with rewards for the most efficient and competitive producers,” says BP’s Dudley.
We may learn more about the major’s take on patterns of supply and demand next month when it releases this year’s Statistical Review of World Energy. Exemplifying the trends and counter trends that shape energy demand, last year’s showed oil in 2015 gained market share in the global energy mix for the first time since 1999.