Last week, 4,500 people from the global energy industry congregated in Houston, Texas for the annual IHS Markit CERAWeek conference. In every conference room and meeting location, conference attendees buzzed with enthusiastic conversation about change. Here are the major themes that dominated the discussion:
A digital oil and gas revolution. Technology jargon entered many conversations. Cloud computing, deep machine learning, 3D printing, artificial intelligence, big data, edge computing, digital twins, automation, fiber optics, robotic process automation, and the biggest of all: blockchain. Case studies were wide reaching. Artificial intelligence can find oil missed by human eyes. Robotic process automation or “bots” can perform repetitive back office tasks. Machine learning systems can reduce downtime by anticipating machine failures. Blockchain will change the way energy is traded and create smarter supply chains. The robots are coming too, freeing people from dangerous and repetitive tasks. BP’s Lamar McKay predicted that new work processes enabled by information technology will reduce the cost of extracting hydrocarbons by at least another 30 percent from today. Amongst all the excitement, Joe Kaeser from Siemens fired a warning shot; while digitization has enormous benefits, it also increases cybersecurity risk. He made a passionate case for the industry to undertake a collective effort to stay ahead of highly sophisticated hackers that could threaten the physical world.
Lowering hydrocarbon emissions. Responding to climate change concerns and investor pressure, oil and gas producers are committing to a lower carbon future. Suncor and ConocoPhillips have voluntarily set targets for reducing the GHG emissions intensity of their production. Shell’s chief executive Ben van Beurden took the concept further, pledging to cut the companies upstream and downstream carbon footprint in half by 2050, his measuring stick includes the consumer’s consumption emissions, which make up 85 percent of all the emissions from oil and gas. Bob Dudley, head of BP explained the companies membership in the Oil and Gas Climate Initiative, a club of 10 major producers that have voluntarily committed to methane reduction targets and advancing green technology, including Carbon Capture Utilization and Storage (CCUS). US Secretary of Energy, Rick Perry summed it up well saying “make fossil fuels cleaner, rather than abandoning them.”
Autonomous electric vehicles (EVs) are coming. General Motors’ (GM) high-energy CEO, Mary Barra described an electric, autonomous and zero emissions future. GM is launching an autonomous EV ride-sharing service in several big cities next year, and has over 20 new electric models under development. Oil executives are acknowledging that EVs will penetrate the market, but they also believe that oil demand will only flatten – not drop – as a result. The reasons? First, light duty vehicles make up only 30 percent of all oil demand; and second because other uses for oil will still grow. The IEA’s Executive Director, Fatih Birol, described petrochemicals – that do not cause combustion emissions – as a giant for future oil consumption. Saudi Aramco’s CEO explained that his firm is actively researching how to convert 70 percent of the oil barrel to petrochemicals, predicting that the carbon in oil could one day be used for making EVs and skyscrapers.
Bullish outlooks for LNG. Shell’s CEO Ben van Beurden commented “LNG demand has been growing at four times the rate of oil demand, and I think it will continue to do so for many years, if not decades.” There is a growing consensus that another wave of LNG projects will be required by the early to mid-2020s. Strong demand comes from replacing coal in power generation and backing up renewables. The one potential threat to natural gas dominance is low-cost battery storage. While experts agreed that economically-viable, large-scale electric storage is still distant, batteries are already finding profitable niches in power grids to reduce transmissions requirements and in hybrid systems with fossil fuel generators.
Questions on the pace of US oil production growth. While most agencies expect US production to grow by over 1 MMB/d in 2018, shale oil pioneer and the former CEO of EOG Resources, Mark Papa warned these outlooks could be too optimistic. Papa believes sweet-spot exhaustion is already occurring in the Eagle Ford and Bakken. In the Permian, concerns were raised that a lack of takeaway capacity could stall growth. Natural gas pipelines were a particular concern since gas flaring is not an option. In a media briefing, Tim Dove from Pioneer Natural Resources described labor as one of the top challenges joking, “unemployment in the Midland is probably a negative number.”
For energy, NAFTA is viewed as a success. Energy ministers from the US, Canada and Mexico met at the conference, and led a discussion focused on the mutual benefits of the North American energy relationship. US Secretary of Energy, Rick Perry shared that all three countries are stronger together than divided, with a goal to create a North American energy strategy that is powerful around the world.
Perhaps the biggest change at this year’s CERAWeek was the lack of discussion on the future path of oil prices. Instead, a welcome change is that the industry is now focusing on excelling at what they can control.
To learn more about the digitization of the oil and gas industry and other factors shaping future energy investment strategy, attend the ARC Energy Investment Forum 2018, “Playing to Win,” on May 9th in Calgary. For more information visit https://www.arcenergyinstitute.com/arc-energy-investment-forum-2018-playing-to-win/